SAIL'S SAIL was the world's 10th largest and India's largest steel manufacturer with a 33% share in the domestic market. In the financial year 1999-2000, the company generated revenues of Rs. 162.5 billion and incurred a net loss of Rs 17.2 billion. Yet, as on February 23, 2001, SAIL had a market valuation of just Rs. 340.8 billion, a meager amount considering the fact that the company owned four integrated and two special steel plants.

1. SAIL'S VOLUNTARY RETIREMENT SCHEME
Case Code-HROB002
Published-2003
INTRODUCTION
At a meeting of the board of directors in June 1999, the CEOs of Steel Authority of India's (SAIL)
four plants - V. Gujral (Bhilai), S. B. Singh (Durgapur), B.K. Singh (Bokaro), and A.K. Singh
(Rourkela) made their usual presentations on their performance projections. One after the other,
they got up to describe how these units were going to post huge losses, once again, in the first
quarter[1]
of 1999-2000. After incurring a huge loss of Rs 15.74 billion in the financial year 1998-99
(the first in the last 12 years), the morale in the company was extremely low. The joke at SAIL's
headquarters in Delhi was that the company's fortunes would change only if a VRS was offered to its
CEOs - not just the workers.
BACKGROUND NOTE
SAIL was the world's 10th largest and India's largest steel manufacturer with a 33% share in
the domestic market. In the financial year 1999-2000, the company generated revenues of
Rs. 162.5 billion and incurred a net loss of Rs 17.2 billion. Yet, as on February 23, 2001, SAIL
had a market valuation of just Rs. 340.8 billion, a meager amount considering the fact that
the company owned four integrated and two special steel plants.
SAIL was formed in 1973 as a holding company of the government owned steel and
associated input companies. In 1978, the subsidiary companies including Durgapur Mishra
Ispat Ltd, Bokaro Steels Ltd, Hindustan Steel Works Ltd, Salem Steel Ltd., SAIL International
Ltd were all dissolved and merged with SAIL. In 1979, the Government transferred to it the
ownership of Indian Iron and Steel Company Ltd. (IISCO) which became a wholly owned
subsidiary of SAIL.
SAIL operated four integrated steel plants, located at Durgapur (WB), Bhilai (MP), Rourkela (Orissa)
and Bokaro (Bihar). The company also operated two alloy/special steel plants located at Durgapur
(WB) and Salem (Tamil Nadu). The Durgapur and Bhilai plants were pre-dominantly1ong products[2]
plants, whereas the Rourkela and Bokaro plants had facilities for manufacturing flat products[3]
.
THE JOLT
In February 2000, the SAIL management received a financial and business-restructuring plan
proposed by McKinsey & Co, a leading global management-consulting firm, and approved by the
government of India (held 85.82% equity stake).
The McKinsey report suggested that SAIL be reorganized into two strategic business units (SBUs) -
a flat products company and a long products company. The SAIL management board too was to be
restructured, so that it should consisted of two SBU chiefs and directors of finance, HRD,
commercial and technical. To increase share value, McKinsey suggested a phased divestment
schedule. The plan envisaged putting the flat products company on the block first, as intense
competition was expected in this area, and the long products company at a later date.
Financial restructuring envisaged waiver of Steel Development Fund[4]
(SDF) loans worth Rs 50.73
billion and Rs 3.8 billion lent to IISCO. The government also agreed to provide guarantee for raising
loans of Rs 15 billion with a 50% interest subsidy for the amount raised. This amount had to be
utilized for reducing manpower through the voluntary retirement scheme. Another guarantee was
given for further raising of Rs 15 billion, for repaying past loans.
Business restructuring proposals included divestment of the following non-core assets:
1

2. • Power plants at Rourkela, Durgapur & Bokaro, oxygen plant-2 of the Bhilai steel plant and
the fertilizer plant at Rourkela.
• Salem Steel Plant (SSP), Salem.
• Alloy Steel Plant (ASP), Durgapur.
• Visvesvaraya Iron and Steel Plant (VISL), Bhadravati.
• Conversion of IISCO into a joint venture with SAIL having only minority shareholding.
THE DILEMMA
The major worry for SAIL's CEO Arvind Pande was the company's 160,000-strong workforce.
Manpower costs alone accounted for 16.69% of the company's gross sales in 1999-2000. This was
the largest percentage, as compared with other steel producers such as Essar Steel (1.47%) and
Ispat Industries (1.34%). An analysis of manpower costs as a percentage of the turnover for
various units of SAIL showed that its raw materials division (RMD), central marketing organisation
(CMO), Research & Development Centre at Ranchi and the SAIL corporate office in Delhi were the
weak spots.
There was considerable excess manpower in the non-plant departments. Around 30% of SAIL's
manpower, including executives, were in the non-plant departments, merely adding to the
superfluous paperwork.
Hindustan Steel, SAIL's predecessor, was modelled on government secretariats, with thousands of
"babus" and messengers adding to the glory of feudal-oriented departmental heads. SAIL had yet to
make any visible effort to reduce surplus manpower.
A senior official at SAIL remarked: "If you walk into any SAIL office anywhere, you will find
people chatting, reading novels, knitting and so on. Thousands of them just do not have any
work. This area has not even been considered as a focus area for the present VRS, possibly
because all orders emanate from and through such superfluous offices and no one wants to
think of himself as surplus." With a manpower of around 60,000 in these offices and non-
plant departments like schools, township activities etc, SAIL could well bring down to less
than 10,000.
Reduction of white-collar manpower required a change in the systems of office work and
record keeping, and a very high degree of computerization. Officers across the organization
employed dozens of stenographers and assistants. Signing on note sheets was a status
symbol for SAIL officers.
Another official commented: "Systems have to be result oriented, rather than person oriented and
responsibilities must match rewards and recognition. There is a need to change the mindset of the
management, before specific plans can be drawn out for reduction of office staff."
From the beginning, SAIL had to contend with political intervention and pressure. Many officials held
that SAIL had to overcome these objectives: “Many employees do not have sufficient orders or work
on hand to justify their continuance, and yet political pressures keep them going. It is time that the
top management takes a tough stand on such matters. One does not have to call in McKinsey to
decide that many SAIL stockyards and branch offices are redundant.”
THE VOLUNTARY RETIREMENT SCHEME
As a part of the restructuring plan, McKinsey had advised Pande that SAIL needed to cut the
160,000-strong labor force to 100,000 by the end of 2003, through a voluntary retirement scheme.
Pande was banking on natural attrition to reduce the number by 45,000 within two years, but GOI's
decision to increase the retirement age to 60 further delayed the reduction. Subsequently, SAIL had
requested GOI to bail it out with a one-time assistance of Rs 15 billion and another subsidized loan
of the same size for a VRS, to achieve the McKinsey targets.
2

3. In a bid to 'rationalize' its huge workforce, SAIL launched a VRS in mid 1998, for employees who
had put in a minimum service of 20 years or were 50 years in age or above. The scheme provided
an income that was equal to 100 per cent of the prevailing basic pay and DA to the eligible
employees. About 5,975 employees opted for the scheme. Of them, 5,317 were executives and 658
non-executives. Most of those who opted were above 55 years.
On March 31, 1999, SAIL introduced a 'sabbatical leave' scheme, under which employees could take
a break from the company for two years for studies/employment elsewhere, with the option of
rejoining the company (if they wanted to) at the end of the period. The sabbatical allowed the
younger members of the SAIL staff to leave without pay for "self-renewal, enhancement of
expertise/knowledge and experimentation," which broadly translated into higher studies or even
new employment.
On June 01, 1999, SAIL launched another VRS for its employees. Employees who had completed a
minimum of 15 years of service or were 40 years or above could opt for the scheme. The new VRS,
which was opened to all regular, permanent employees of the company, would be operational till
31st January 2000. Its target groups included:
• Those who were habitual absentees, regularly ill and those who had become surplus
because of the closure of plants and mines;
• Poor performers.
Under the new package, employees who opted for the scheme, depending on their age, would get a
monthly income as a percentage of their prevailing basic salary and dearness allowance (DA) for the
remaining years of their services, till superannuation. Employees above 55 years of age would be
given 105 per cent of the basic pay and dearness allowance (DA) every month. Those employees
who were between the age of 52 and 55 years would receive 95 per cent of the basic pay and DA
while those below 52 years would get 85 per cent of the basic pay and DA. The new scheme, like
the old one was a deferred payment scheme, with extra carrots like a 5% increase in monthly
benefits for each of the three age groups.
By September 1999, over 4,000 employees opted for the new scheme. About 1,700 employees
opted for VRS in the Durgapur steel plant while in the Bhilai, Bokaro and Rourkela steel plants. The
number varied between 400 and 700.
In September 2000, SAIL announced yet another round of VRS, in a bid to remove 10,000
employees by the end of March 2001. The company planned to approach financial institutions for a
credit of Rs 5 billion. Pande said: "We are awaiting the government nod for the VRS scheme, drawn
on the pattern of the standard VRS by department of public enterprises. We expect to get the
clearance by the end of the month."
On February 08, 2001, SAIL ended its four year recruitment freeze by announcing its plans to fill up
more than 250 posts at its various plant sites in both technical and non-technical categories.
According to a senior SAIL official: "This recruitment is being done to ease the vacancies created
due to natural attrition and those that arose after the previous VRS."
THE PERSUASION
In mid 1998, in a bid to convince its employees to accept VRS, SAIL highlighted six 'plus'
points of VRS, in its internal communique, Varta. They were as follows:
• During the next 4-5 years, SAIL has to reduce its workforce by 60,000 for its own
survival. Employees with chronic ailments, and habitual absentees, who add to low
productivity, have to go first - maybe, with the help of administrative actions.
• The employees may have to be transferred to any other part of the country in the
larger interest of the company.
• For those who started their career as healthy young men 25-30 years ago, the VRS
3

4. will take care of their financial worries to a great extent, and they can discharge
their domestic duties more comfortably.
• VRS can be used for special purposes like paying huge sum of money for getting
one's son admitted to a professional course.
• VRS will give many individuals the money and time on pursuing personal dreams.
• It can be a good opportunity to do social service.
On December 27, 1999, SAIL initiated a company-wide information dissemination program to
educate the staff on restructuring. The company drafted an internal communication document
entitled "Turnaround and Transformation" and a special team of 66 internal resource persons (IRP)
had been assigned the task of preparing a detailed plan to take this document to a larger number of
people within the company. The 66-member team was constituted in September 1999 and was
stationed in Ranchi to undergo a detailed briefing-cum-training course. A generalized module was
presented to the IRP team during the course, which then summarised the root causes of SAIL's
crisis and the strategies to overcome it.
According to an official involved with the program: "Initiatives like the power plant hive-off or the
Salem Steel joint venture will hinge on employee concurrence, particularly at the shop floor level,
and therefore there has to be an intensive communication program in place to reassure employees
that their interests will be protected."
The 66-member IRP team conducted half-day workshops across plants and other units based on
three specific modules:
A video film conveying a message from the chairman of the company.
A generalized module of the recommendations of the turnaround plan focusing on restoring the
financial foundation, reinforcing marketing initiatives and regaining cost leadership.
A module covering plant-specific or unit-specific issues and strategies for action.
The exercise was expected to cover at least 16,000 SAIL employees by the end of March 2000. A
senior official at SAIL said: "The idea is that the employees covered in this phase would take the
communication process forward to their peer group and fellow colleagues."
The staff education exercise was stressed upon, particularly in view of the power plant hive-off
fiasco, which could not take off as scheduled due to stiff resistance from central trade unions. The
problem, at the time, was that the SAIL top brass had failed to convince the employees that jobs
would not be at risk because of the hive-off.
THE REACTION
The trade unions were on a warpath against the recommendations of McKinsey. Posters put up by
the Centre of Indian Trade Unions (CITU) at SAIL's central marketing office said that the McKinsey
report was meant, not for the revival or survival of SAIL, but for its burial. A senior TU leader said:
"SAIL TUs so far have been extremely tolerant and exercised utmost restraint. Even in the face of
scanty communication by the management of SAIL, they have not lost patience in these trying
times."
The TU leaders felt that SAIL would try to bolster support for the financial restructuring proposal
based on the recommendations of McKinsey. But being a government-owned company, SAIL cannot
take decisions on such recommendations as the privatization of SAIL or breaking it up into two
product-based companies. Even in relatively small matters the like hiving off of power plants to a
subsidiary company, with SAIL being the major partner, the government had not cleared SAIL's
proposal, even after months of gestation. Therefore, it was futile to think that SAIL would secure
the permission of the government to sell off Salem Steel Plant (SSP) in Tamil Nadu or close down
Alloy Steels Plant (ASP) at Durgapur in West Bengal.
At SSP, all the TUs had joined hands to form a 'Save Salem Steel Committee' and observed a day's
4

5. token strike on June 24, 1999, demanding investment in SSP by SAIL, rather than by a private
partner.
Though TUs had no objection to voluntary retirements, they were not very happy about the
situation. They were worried that employment opportunities were shrinking in the steel industry and
that reduction of manpower would mean increasing the number of contractors and their workforce.
After the Rourkela Steel Plant in Orissa absorbed contractors' workers on Supreme Court orders,
fresh contractors had been appointed to fill up the vacancies.
SAIL'S VOLUNTARY RETIREMENT SCHEME
THE PERSUASION & THE RELATION
SAIL TU leaders were emphatic that the McKinsey recommendations were not the last word on
SAIL. They felt that foreign consultancy firms were unable to appreciate the role played by
major public sector units like SAIL or Indian Oil in the growth of the Indian economy.
They alleged that since large public sector units had shown they could withstand the
onslaught of the multinationals, efforts were being made to weaken them, break them
into pieces and eventually privatize them.
On February 17, 2000, workers at SSP went on a strike against the government's
decision to restructure SAIL. The strike was called by eight unions affiliated to CITU,
INTUC, ADMK and PMK. CITU secretary Tapan Sen said: "The unions are going to serve
the ultimatum to the government for indefinite action in the days to come if this
retrograde decision is not reversed. Demonstrations were held against the government's
decision in all steel plants and workers of Durgapur would hold a daylong dharna. Steel
workers all over the country, irrespective of affiliations have reacted sharply to the
disastrous and deceptive decision of the government on the so-called restructuring of
SAIL."
QUESTIONS FOR DISCUSSION
1. McKinsey's recommendation is that SAIL cut its workforce to 100,000 by the end of 2003.
SAIL has launched various VR schemes to meet this target. Though every time the company is
comes out with improved schemes there are still not many takers. What according to you could
be the reasons?
2. The staff education exercise on VRS at SAIL seems to be more of a reaction to the power
plant hive-off fiasco than a proactive measure. What other steps can SAIL take to educate
employees about VRS? Explain.
3. According to McKinsey proposals, offering VRS to employees was the part of the restructuring
plan. Do you think VRS is sufficient without restructuring or vice-versa? Comment.
4. In February 2001, SAIL ended its four-year recruitment freeze by announcing its plans to fill
up more than 250 posts. Do you think this is the right move especially when a VRS is being
offered to its employees? Explain.
5

6. ADDITIONAL READING & REFERENCES:
1. Bhandari Bhupesh, SAIL sill has an appetite for equity, Business World, February 7,
1996.
2. Sarkar Ranju, Has SAIL recast its bottomline?, Business Today, July 22, 1997.
3. Maitra Dilip, Did SAIL smelt its profits in its furnaces?, Business Today, November 7,
1998.
4. Sarkar Ranju, Can SAIL rapidly (Re)Steel its future?, Business Today, July 22, 1999.
5. Pannu SPS, Debate on AI contract labour case reopened, The Hindustan Times, August
15, 1999.
6. Ghosh Indranil, In choppy waters, Business India, August 9, 1999.
7. Mazumdar Rakhi, The TAO of top, Business Today, September 22, 1999.
8. Chandrashekhar R. The case of the voluntary VRS, Business Today, September 22,
1999.
9. SAIL: The new CEO centre, Business Today, November 22, 1999.
10. Srinivas Alam, SAIL restructuring: the other guy blinked, Business Today, April 22,
2000.
11. Ghosh Indranil, On the road to recovery, Business India, June 12, 2000.
12. Chandrashekhar R. The case of effective downsizing, Business Today, June 22, 2000.
13. SAIL to kick off retirement scheme next month, India Today Online, September 05,
2000.
14. SAIL ends 4-year recruitment freeze, The Economic Times, February 9, 2001.
15. Srinivasan MV, Voluntary retirement and workers' welfare, www.epw.org.in.
16. www.indiainfoline.com.
17. Sweet D.H., Derecruitment & Outplacement.
18. Boller R., What Colour Is Your Parachute?
19. R. L. Dipboye, The Older Workforce.
20. Kaye B., Up Is Not The Only Way.
6

7. 21. Sweet D. H., A Manager's Guide To Termination.
22. Spurgeon H. & Howbert P.A., Ready, Fire!
23. Walker J.W. & Lazar H.L., The End Of Mandatory Retirement.
BATA INDIA'S HR PROBLEMS
Case code- HROB001
Published-2003
INTRODUCTION
For right or wrong reasons, Bata India Limited (Bata) always made the headlines in the financial
dailies and business magazines during the late 1990s. The company was headed by the 60 year old
managing director William Keith Weston (Weston). He was popularly known as a 'turnaround
specialist' and had successfully turned around many sick companies within the Bata Shoe
Organization (BSO) group.
By the end of financial year 1999, Bata managed to report rising profits for four consecutive years
after incurring its first ever loss of Rs 420 million in 1995. However, by the third quarter ended
September 30, 2000, Weston was a worried man. Bata was once again on the downward path. The
company's nine months net profits of Rs 105.5 million in 2000 was substantially lower than the Rs
209.8 million recorded in 1999. Its staff costs of Rs 1.29 million (23% of net sales) was also higher
as compared to Rs 1.18 million incurred in the previous year. In September 2000, Bata was heading
towards a major labour dispute as Bata Mazdoor Union (BMU) had requested West Bengal
government to intervene in what it considered to be a major downsizing exercise.
BACKGROUND NOTE
With net revenues of Rs 7.27 billion and net profit of Rs 304.6 million for the financial year ending
December 31, 1999, Bata was India's largest manufacturer and marketer of footwear products. As
on February 08, 2001, the company had a market valuation of Rs 3.7 billion. For years, Bata's
reasonably priced, sturdy footwear had made it one of India's best known brands. Bata sold over 60
million pairs per annum in India and also exported its products in overseas markets including the
US, the UK, Europe and Middle East countries. The company was an important operation for its
Toronto, Canada based parent, the BSO group run by Thomas Bata, which owned 51% equity stake.
The company provided employment to over 15,000 people in its manufacturing and sales operations
throughout India. Headquartered in Calcutta, the company manufactured over 33 million pairs per
year in its five plants located in Batanagar (West Bengal), Faridabad (Haryana), Bangalore
(Karnataka), Patna (Bihar) and Hosur (Tamil Nadu). The company had a distribution network of over
1,500 retail stores and 27 wholesale depots. It outsourced over 23 million pairs per year from
various small-scale manufacturers.
7

8. Throughout its history, Bata was plagued by perennial labor problems with frequent strikes and
lockouts at its manufacturing facilities. The company incurred huge employee expenses (22% of net
sales in 1999). Competitors like Liberty Shoes were far more cost-effective with salaries of its 5,000
strong workforce comprising just 5% of its turnover.
When the company was in the red in 1995 for the first time, BSO restructured the entire board and
sent in a team headed by Weston. Soon after he stepped in several changes were made in the
management. Indians who held key positions in top management, were replaced with expatriate
Weston taking over as managing director. Mike Middleton was appointed as deputy managing
director and R. Senonner headed the marketing division. They made several key changes, including
a complete overhaul of the company's operations and key departments. Within two months of
Weston taking over, Bata decided to sell its headquarter building in Calcutta for Rs 195 million, in a
bid to stem losses. The company shifted wholesale, planning & distribution, and the commercial
department to Batanagar, despite opposition from the trade unions. Robin Majumdar, president, co-
ordination committee, Bata Trade Union, criticized the move, saying: "Profits may return, but honor
is difficult to regain."
The management team implemented a massive revamping exercise in which more than 250
managers and their juniors were asked to quit. Bata decided to stop further recruitment, and
allowed only the redundant staff to fill the gaps created by superannuation and retirements. The
management offered its staff an employment policy that was linked to sales-growth performance.
ASSAULT CASE
More than half of Bata's production came from the Batanagar factory in West Bengal, a state
notorious for its militant trade unions, who derived their strength from the dominant political
parties, especially the left parties. Notwithstanding the giant conglomerate's grip on the shoe
market in India, Bata's equally large reputation for corruption within, created the perception that
Weston would have a difficult time. When the new management team weeded out irregularities and
turned the company around within a couple of years, tackling the politicized trade unions proved to
be the hardest of all tasks.
On July 21, 1998, Weston was severely assaulted by four workers at the company's factory at
Batanagar, while he was attending a business meet. The incident occurred after a member of BMU,
Arup Dutta, met Weston to discuss the issue of the suspended employees. Dutta reportedly got into
a verbal duel with Weston, upon which the other workers began to shout slogans. When Weston
tried to leave the room the workers turned violent and assaulted him. This was the second attack on
an officer after Weston took charge of the company, the first one being the assault on the chief
welfare officer in 1996.
Soon after the incident, the management dismissed the three employees who were involved in the
violence. The employees involved accepted their dismissal letters but subsequently provoked other
workers to go in for a strike to protest the management's move. Workers at Batanagar went on a
strike for two days following the incident. Commenting on the strike, Majumdar said: "The issue of
Bata was much wider than that of the dismissal of three employees on grounds of indiscipline.
Stoppage of recruitment and continuous farming out of jobs had been causing widespread
resentment among employees for a long time."
Following the incident, BSO decided to reconsider its investment plans at Batanagar. Senior vice-
president and member of the executive committee, MJZ Mowla, said[1]: "We had chalked out a
significant investment programme at Batanagar this year which was more than what was invested
last year. However, that will all be postponed."
The incident had opened a can of worms, said the company insiders. The three men who were
charge-sheeted, were members of the 41-member committee of BMU, which had strong political
connections with the ruling Communist Party of India (Marxist). The trio it was alleged, had in the
past a good rapport with the senior managers, who were no longer with the organization. These
8

9. managers had reportedly farmed out a large chunk of the contract operations to this trio.
Company insiders said the recent violence was more a political issue rather than an industrial
relations problem, since the workers had had very little to do with it. Seeing the seriousness of the
issue and the party's involvement, the union, the state government tried to solve the problem by
setting up a tripartite meeting among company officials, the labor directorate and the union
representatives. The workers feared a closedown as the inquiry proceeded.
INDUSTRIAL RELATIONS
For Bata, labor had always posed major problems. Strikes seemed to be a perennial problem. Much
before the assault case, Bata's chronically restive factory at Batanagar had always plagued by labor
strife. In 1992, the factory was closed for four and a half months. In 1995, Bata entered into a 3-
year bipartite agreement with the workers, represented by the then 10,000 strong BMU, which also
had the West Bengal government as a signatory.
On July 21, 1998, Weston was severely assaulted by four workers at the company's factory at
Batanagar, while he was attending a business meet. The incident occurred after a member of BMU,
Arup Dutta, met Weston to discuss the issue of the suspended employees. Dutta reportedly got into
a verbal duel with Weston, upon which the other workers began to shout slogans. When Weston
tried to leave the room the workers turned violent and assaulted him. This was the second attack on
an officer after Weston took charge of the company, the first one being the assault on the chief
welfare officer in 1996.
In February 1999, a lockout was declared in Bata's Faridabad Unit. Middleton commented that the
closure of the unit would not have much impact on the company's revenues as it was catering to
lower-end products such as canvas and Hawaii chappals. The lock out lasted for eight months. In
October 1999, the unit resumed production when Bata signed a three-year wage agreement.
On March 8, 2000, a lockout was declared at Bata's Peenya factory in Bangalore, following a strike
by its employee union. The new leadership of the union had refused to abide by the wage
agreement, which was to expire in August 2001. Following the failure of its negotiations with the
union, the management decided to go for a lock out. Bata management was of the view that though
it would have to bear the cost of maintaining an idle plant (Rs. 3 million), the effect of the closures
on sales and production would be minimal as the footwear manufactured in the factory could be
shifted to the company's other factories and associate manufacturers. The factory had 300 workers
on its rolls and manufactured canvas and PVC footwear.
In July 2000, Bata lifted the lockout at the Peenya factory. However, some of the workers opposed
the company's move to get an undertaking from the factory employees to resume work. The
employees demanded revocation of suspension against 20 of their fellow employees. They also
demanded that conditions such as maintaining normal production schedule, conforming to standing
orders and the settlement in force should not be insisted upon.
In September 2000, Bata was again headed for a labour dispute when the BMU asked the West
Bengal government to intervene in what it perceived to be a downsizing exercise being undertaken
by the management. BMU justified this move by alleging that the management has increased
outsourcing of products and also due to perceived declining importance of the Batanagar unit. The
union said that Bata has started outsourcing the Power range of fully manufactured shoes from
China, compared to the earlier outsourcing of only assembly and sewing line job. The company's
production of Hawai chappals at the Batanagar unit too had come down by 58% from the weekly
capacity of 0.144 million pairs. These steps had resulted in lower income for the workers forcing
them to approach the government for saving their interests.
CHANGE MANAGEMENT@ICICI
9

10. Case Code-HROB008
Published-2002
"What role am I supposed to play in this ever-changing entity? Has anyone worked out the basis on
which roles are being allocated today?"
- A middle level ICICI manager, in 1998.
"We do put people under stress by raising the bar constantly. That is the only way to ensure that
performers lead the change process."
- K. V. Kamath, MD & CEO, ICICI, in 1998.
THE CHANGE LEADER
In May 1996, K.V. Kamath (Kamath) replaced Narayan Vaghul (Vaghul), CEO of India's leading
financial services company Industrial Credit and Investment Corporation of India (ICICI).
Immediately after taking charge, Kamath introduced massive changes in the organizational
structure and the emphasis of the organization changed - from a development bank [1]
mode to that
of a market-driven financial conglomerate.
Kamath's moves were prompted by his decision to create new divisions to tap new markets and to
introduce flexibility in the organization to increase its ability to respond to market changes.
Necessitated because of the organization's new-found aim of becoming a financial powerhouse, the
large-scale changes caused enormous tension within the organization. The systems within the
company soon were in a state of stress. Employees were finding the changes unacceptable as
learning new skills and adapting to the process orientation was proving difficult.
The changes also brought in a lot of confusion among the employees, with media reports frequently
carrying quotes from disgruntled ICICI employees. According to analysts, a large section of
employees began feeling alienated.
The discontentment among employees further increased, when Kamath formed specialist groups
within ICICI like the 'structured projects' and 'infrastructure' group.
Doubts were soon raised regarding whether Kamath had gone 'too fast too soon,' and more
importantly, whether he would be able to steer the employees and the organization through the
changes he had initiated.
BACKGROUND NOTE
ICICI was established by the Government of India in 1955 as a public limited company to promote
industrial development in India. The major institutional shareholders were the Unit Trust of India
(UTI), the Life Insurance Corporation of India (LIC) and the General Insurance Corporation of India
(GIC) and its subsidiaries. The equity of the corporation was supplemented by borrowings from the
Government of India, the World Bank, the Development Loan Fund (now merged with the Agency
for International Development), Kreditanstalt fur Wiederaufbau (an agency of the Government of
Germany), the UK government and the Industrial Development Bank of India (IDBI).
The basic objectives of the ICICI were to
• assist in creation, expansion and modernization of enterprises
• encourage and promote the participation of private capital, both internal and external
• take up the ownership of industrial investment; and
• expand the investment markets.
10

11. Since the mid 1980s, ICICI diversified rapidly into areas like merchant banking and retailing. In
1987, ICICI co-promoted India's first credit rating agency, Credit Rating and Information Services of
India Limited (CRISIL), to rate debt obligations of Indian companies. In 1988, ICICI promoted
India's first venture capital company - Technology Development and Information Company of India
Limited (TDICI) - to provide venture capital for indigenous technology-oriented ventures.
In the 1990s, ICICI diversified into different forms of asset financing such as leasing, asset credit
and deferred credit, as well as financing for non-project activities. In 1991, ICICI and the Unit Trust
of India set up India's first screen-based securities market, the over-the-counter Exchange of India
(OCTEI). In 1992 ICICI tied up with J P Morgan of the US to form an investment banking company,
ICICI Securities Limited.
In line with its vision of becoming a universal bank, ICICI restructured its business based on the
recommendations of consultants McKinsey & Co in 1998. In the late 1990s, ICICI concentrated on
building up its retail business through acquisitions and mergers. It took over ITC Classic, Anagram
Finance and merged the Shipping Credit Investment Corporation of India (SCICI) with itself. ICICI
also entered the insurance business with Prudential plc of UK.
ICICI was reported to be one of the few Indian companies known for its quick responsiveness to the
changing circumstances. While its development bank counterpart IDBI was reportedly not doing
very well in late 2001, ICICI had major plans of expanding on the anvil. This was expected to bring
with it further challenges as well as potential change management issues. However, the
organization did not seem to much perturbed by this, considering that it had successfully managed
to handle the employee unrest following Kamath's appointment.
CHANGE CHALLENGES - PART II
ICICI had to face change resistance once again in December 2000, when ICICI Bank was merged
with Bank of Madura (BoM)[1] . Though ICICI Bank was nearly three times the size of BoM, its staff
strength was only 1,400 as against BoM's 2,500. Half of BoM's personnel were clerks and around
350 were subordinate staff.
There were large differences in profiles, grades, designations and salaries of personnel in the two
entities. It was also reported that there was uneasiness among the staff of BoM as they felt that
ICICI would push up the productivity per employee, to match the levels of ICICI [2]. BoM
employees feared that their positions would come in for a closer scrutiny. They were not sure
whether the rural branches would continue or not as ICICI's business was largely urban-oriented.
The apprehensions of the BoM employees seemed to be justified as the working culture at ICICI and
BoM were quite different and the emphasis of the respective management was also different. While
BoM management concentrated on the overall profitability of the Bank, ICICI management turned
all its departments into individual profit centers and bonus for employees was given on the
performance of individual profit center rather than profits of whole organization.
ICICI not only put in place a host of measures to technologically upgrade the BoM branches to
ICICI's standards, but also paid special attention to facilitate a smooth cultural integration. The
company appointed consultants Hewitt Associates[3]to help in working out a uniform compensation
and work culture and to take care of any change management problems.
ICICI conducted an employee behavioral pattern study to assess the various fears and
apprehensions that employees typically went through during a merger. (Refer Table I).
TABLE I
'POST-MERGER' EMPLOYEE BEHAVIORAL PATTERN
PERIOD EMPLOYEE BEHAVIOR
11

12. Day 1
Denial, fear, no improvement
After a month
Sadness, slight improvement
After a Year
Acceptance, significant improvement
After 2 Years
Relief, liking, enjoyment, business development activities
Source:www.sibm.edu
Based on the above findings, ICICI established systems to take care of the employee resistance
with action rather than words. The 'fear of the unknown' was tackled with adept communication and
the 'fear of inability to function' was addressed by adequate training. The company also formulated
a 'HR blue print' to ensure smooth integration of the human resources. (Refer Table II).
TABLE II
MANAGING HR DURING THE ICICI-BoM MERGER
THE HR BLUEPRINT
AREAS OF HR INTEGRATION
FOCUSSED ON
• A data base of the entire HR structure
• Road map of career
• Determining the blue print of HR moves
• Communication of milestones
• IT Integration - People Integration -
Business Integration.
• Employee communication
• Cultural integration
• Organization structuring
• Recruitment & Compensation
• Performance management
• Training
• Employee relations
Source:www.sibm.edu
EMPLOYEE DOWNSIZING
Case Code- HROB016
Publication Date -2002
"Next to the death of a relative or friend, there's nothing more traumatic than losing a job.
Corporate cutbacks threaten the security and self-esteem of survivors and victims alike. They cause
12

13. turmoil and shatter morale inside organizations and they confirm the view that profits always come
before people."
- Laura Rubach, Industry Analyst, in 1994.
"The market is going to determine where we stop with the layoffs."
- Tom Ryan, a Boeing spokesman, in August 2002
DOWNSIZING BLUES ALL OVER THE WORLD
The job markets across the world looked very gloomy in the early 21st century, with many
companies having downsized a considerable part of their employee base and many more revealing
plans to do so in the near future. Companies on the Forbes 500 and Forbes International 800 lists
had laid off over 460,000 employees' altogether, during early 2001 itself.
This trend created havoc in the lives of millions of employees across the world, Many people lost
their jobs at a very short or no advance notice, and many others lived in a state of uncertainty
regarding their jobs. Companies claimed that worldwide economic slowdown during the late-1990s
had had forced them to downsize, cut costs, optimize resources and survive the slump. Though the
concept of downsizing had existed for a long time, its use had increased only recently, since the
late-1990s. (Refer Table I for information on downsizing by major companies).
Analysts commented that downsizing did more damage than good to the companies as it resulted in
low morale of retained employees, loss of employee loyalty and loss of expertise as key
personnel/experts left to find more secure jobs. Moreover, the uncertain job environment created
by downsizing negatively effected the quality of the work produced. Analysts also felt that most
companies adopted downsizing just as a 'me-too' strategy even when it was not required.
However, despite these concerns, the number of companies that chose to downsize their employee
base increased in the early 21st century. Downsizing strategy was adopted by almost all major
industries such as banking, automobiles, chemical, information technology, fabrics, FMCG, air
transportation and petroleum. In mid-2002, some of the major companies that announced
downsizing plans involving a large number of employees included Jaguar (UK), Boeing (US), Charles
Schwab (US), Alactel (France), Dresdner (Germany), Lucent Technologies (US), Ciena Corp. (US)
and Goldman Sachs Group (US). Even in companies' developing countries such as India, Indonesia,
Thailand, Malaysia and South Korea were going in for downsizing.
TABLE I
DOWNSIZING BY MAJOR COMPANIES (1998-2001)
YEAR COMPANY INDUSTRY
No. of Employees
Downsized
1998 Boeing Aerospace 20,000
1998 CitiCorp Banking 7,500
1998 Chase Manhattan Bank Banking 2,250
1998 Kellogs FMCG 1,00
1998 BF Goodrich Tyres 1,200
1998 Deere & Company Farm Equipment 2,400
1998 AT&T Telecommunications 18,000
1998 Compaq IT 6,500
1998 Intel IT 3,000
1998 Seagate IT 10,000
13

14. 1999 Chase Manhattan Bank Banking 2,250
1999 Boeing Aerospace 28,000
1999 Exxon-Mobil Petroleum 9,000
2000 Lucent Technologies IT 68,000
2000 Charles Schwab IT 2,000
2001 Xerox Copiers 4,000
2001 Hewlett Packard IT 3,000
2001 AOL Time Warner Entertainment 2,400
THE FIRST PHASE
Till the late-1980s, the number of firms that adopted downsizing was rather limited, but the
situation changed in the early-1990s. Companies such as General Electric (GE) and General Motors
(GM) downsized to increase productivity and efficiency, optimize resources and survive competition
and eliminate duplication of work after M&As. Some other organizations that made major job cuts
during this period were Boeing (due to its merger with McDonnell Douglas), Mobil (due to the
acquisition of Exxon), Deutsche Bank (due to its merger with Bankers Trust) and Hoechst AG (due
to its merger with Rhone-Poulenc SA).
According to analysts, most of these successful companies undertook downsizing as a purposeful
and proactive strategy. These companies not only reduced their workforce, they also redesigned
their organizations and implemented quality improvement programs. During the early and mid-
1990s, companies across the world (and especially in the US), began focusing on enhancing the
value of the organization as a whole. According to Jack Welch, the then GE CEO, "The ultimate test
of leadership is enhancing the long-term value of the organization. For leaders of a publicly held
corporation, this means long-term shareholder value." In line with this approach to leadership, GE
abandoned policy of lifetime employment and introduced the concept of contingent employment.
Simultaneously, it began offering employees the best training and development opportunities to
constantly enhance their skills and performance and keep pace with the changing needs of the
workplace.
During this period, many companies started downsizing their workforce to improve the image of the
firm among the stockholders or investors and to become more competitive. The chemical industry
came out strongly in favor of the downsizing concept in the early 1990s. Most chemical and drug
companies restricted their organizations and cut down their employee base to reduce costs and
optimize resources.
As the perceived value of the downsized company was more than its actual value, managers
adopted downsizing even though it was not warranted by the situation. A few analysts blamed the
changes in the compensation system for executive management for the increase in the number of
companies downsizing their workforce in 1990s. In the new compensation system, managers were
compensated in stock options instead of cash. Since downsizing increased the equity value
(investors buy the downsizing company's stocks in hope of future profitability) of the company,
managers sought to increase their wealth through downsizing. Thus, despite positive economic
growth during the early 1990s, over 600,000 employees were downsized in the US in 1993.
However, most companies did not achieve their objectives and, instead, suffered the negative
effects of downsizing. A survey conducted by the American Management Association revealed that
less than half of the companies that downsized in the 1990s saw an increase in profits during that
period. The survey also revealed that a majority of these companies failed to report any
improvements in productivity.
One company that suffered greatly was Delta Airlines, which had laid off over 18,000 employees
during the early 1990s. Delta Airlines realized in a very short time that it was running short of
14

15. people for its baggage handling, maintenance and customer service departments. Though Delta
succeeded in making some money in the short run, it ended up losing experienced and skilled
workers, as a result of which it had to invest heavily in rehiring many workers.
As investors seemed to be flocking to downsizing companies, many companies saw downsizing as a
tool for increasing their share value. The above, coupled with the fact that senior executive salaries
had increased by over 1000% between 1980 and 1995, even as the layoff percentage reached its
maximum during the same period, led to criticism of downsizing.
In light of the negative influence that downsizing was having on both the downsized and the
surviving employees, some economists advocated the imposition of a downsizing tax (on downsizing
organizations) by the government to discourage companies from downsizing. This type of tax
already existed in France, where companies downsizing more than 40 workers had to report the
same in writing to the labor department. Also, such companies had liable to pay high severance
fees, contribute to an unemployment fund, and submit a plan to the government regarding the
retraining program of its displaced employees (for their future employment). The tax burden of such
companies increased because they were no longer exempt from various payroll taxes.
However, the downsizing tax caused more problems than it solved. As this policy restrained a
company from downsizing, it damaged the chances of potential job seekers to get into the
company. This tax was mainly responsible for the low rate of job creation and high rates of
unemployment in many European countries, including France.
THE SECOND PHASE
By the mid-1990s, factors such as increased investor awareness, stronger economies, fall in
inflation, increasing national incomes, decrease in level of unemployment, and high profits, reduced
the need for downsizing across the globe. However, just as the downsizing trend seemed to be on a
decline, it picked up momentum again in the late-1990s, this time spreading to developing countries
as well.
This change was attributed to factors such as worldwide economic recession, increase in global
competition, the slump in the IT industry, dynamic changes in technologies, and increase in the
availability of a temporary employee base. Rationalization of the labor force and wage reduction
took place at an alarming rate during the late 1990s and early 21st century, with increased strategic
alliances and growing popularity of concepts such as lean manufacturing and outsourcing .
Criticism of downsizing and its ill-effects soon began resurfacing. Many companies suffered from
negative effects of downsizing and lost some of their best employees. Other problems such as the
uneven distribution of employees (too many employees in a certain division and inadequate
employees in another), excess workload on the survivors, resistance to change from the survivors,
reduced productivity and fall in quality levels also cropped up. As in the early 1990s, many
organizations downsized even though it was not necessary, because it appeared to be the popular
thing to do.
Due to the loss of experienced workers, companies incurred expenditure on overtime pay and
employment of temporary and contract workers. It was reported that about half of the companies
that downsized their workforce ended up recruiting new or former staff within a few years after
downsizing because of insufficient workers or lack of experienced people. The US-based global
telecom giant AT&T was one such company, which earned the dubious reputation of frequently
rehiring its former employees because the retained employees were unable to handle the work load.
AT&T frequently rehired former employees until it absorbed the 'shock' of downsizing. It was also
reported that in some cases, AT&T even paid recruitment firms twice the salaries of laid-off workers
to bring them back to AT&T. A former AT&T manager commented, "It seemed like they would fire
someone and [the worker] would be right back at their desk the next day." Justifying the above,
Frank Carrubba, Former Operations Director, AT&T, said, "It does not happen that much, but who
better to bring back than someone who knows the ropes?" Very few people bought this argument,
15

16. and the rationale behind downsizing and then rehiring former employees/recruiting new staff began
to be questioned by the media as well as the regulatory authorities in various parts of the world.
Meanwhile, allegations that downsizing was being adopted by companies to support the increasingly
fat pay-checks of their senior executives increased. AT&T was again in the news in this regard. In
1996, the company doubled the remuneration of its Chairman, even as over 40,000 employees
were downsized. Leading Internet start-up AOL was also criticized for the same reasons. The
increase in salary and bonuses of AOL's six highest paid executive officers was between 8.9% to
25.2% during 2000. The average increase in salary and bonus of each officer was about 16%, with
the remuneration of the CEO exceeding $73 million during the period. Shortly after this raise, AOL
downsized 2,400 employees in January 2001.
Following the demand that the executive officers should also share in the 'sacrifice' associated with
downsizing, some companies voluntarily announced that they would cut down on the remuneration
and bonuses of their top executives in case of massive layoffs. Ford was one of the first companies
to announce such an initiative. It announced that over 6,000 of its top executives, including its CEO,
would forgo their bonus in 2001. Other major companies that announced that their top executives
would forgo cash compensations when a large number of workers were laid off were AMR Corp.,
Delta, Continental and Southwest Airlines. In addition to the above, companies adopted many
strategies to deal with the criticisms they were facing because of downsizing.
TACKLING THE EVILS OF DOWNSIZING
During the early 21st century, many companies began offering flexible work arrangements to their
employees in an attempt to avoid the negative impact of downsizing. Such an arrangement was
reported to be beneficial for both employees as well as the organization. A flexible working
arrangement resulted in increased morale and productivity; decreased absenteeism and employee
turnover, reduced stress on employees; increased ability to recruit and retain superior quality
employees improved service to clients in various time zones; and better use of office equipment and
space. This type of arrangement also gave more time to pursue their education, hobbies, and
professional development, and handle personal responsibilities.
The concept of contingent employment also became highly popular and the number of organizations
adopting this concept increased substantially during the early 21st century. According to the Bureau
of Labor Statistics (BLS), US, contingent employees were those who had no explicit or implicit
contract and expected their jobs to last no more than one year. They were hired directly by the
company or through an external agency on a contract basis for a specific work for a limited period
of time.
Companies did not have to pay unemployment taxes, retirement or health benefits for contingent
employees. Though these employees appeared on the payroll, they were not covered by the
employee handbook (which includes the rights and duties of employers and employees and
employment rules and regulations). In many cases, the salaries paid to them were less than these
given to regular employees performing similar jobs. Thus, these employees offered flexibility
without long-term commitments and enabled organizations to downsize them, when not required,
without much difficulty or guilt. Analysts commented that in many cases HR managers opted for
contingent employees as they offered the least resistance when downsized.
However, analysts also commented that while contingent employment had its advantages, it posed
many problems in the long run. In the initial years, when contingent employment was introduced,
such employees were asked to perform non-critical jobs that had no relation to an organization's
core business. But during the early 2000s, contingent employees were employed in core areas of
organizations. This resulted in increased costs as they had to be framed for the job. Not only was
training time consuming, its costs were recurring in nature as contingent employees stayed only for
their specified contract period and were soon replaced by a new batch of contingent employees.
16

17. Productivity suffered considerably during the period when contingent employees were being trained.
The fact that such employees were not very loyal to the organization also led to problems.
Analysts also found that most contingent employees preferred their flexible work arrangements and
were not even lured by the carrot (carrot and stick theory of motivation) of permanent employment
offered for outstanding performance. In the words of Paul Cash, Senior Vice President, Team
America (a leasing company), "It used to be that you worked as a temp to position yourself for a
full-time job. That carrot is not there any more for substantial numbers of temps who prefer their
temporary status. They do not understand your rules, and if they are only going to be on board for
a month, they may never understand." With such an attitude to remain outside the ambit of
company rules and regulations, contingent employees reportedly failed to develop a sense of loyalty
toward the organization. Consequently, they failed to completely commit themselves to the goals of
the organization.
According to some analysts, the contingent employment arrangement was not beneficial to
contingent employees. Under the terms of the contract, they were not eligible for health,
retirement, or overtime benefits. Discrimination against contingent employees at the workplace was
reported in many organizations. The increasing number of contingent employees in an organization
was found to have a negative effect on the morale of regular employees. Their presence made the
company's regular employees apprehensive about their job security. In many cases regular
employees were afraid to ask for a raise or other benefits as they feared they might lose their jobs.
Though contingent employment seemed to have emerged as one of the solutions to the ills of
downsizing, it attracted criticism similar to those that downsizing did. As a result, issues regarding
employee welfare and the plight of employees, who were subject to constant uncertainty and
insecurity regarding their future, remained unaddressed. Given these circumstances, the best option
for companies seemed to be to learn from those organizations that had been comparatively
successful at downsizing.
LESSONS FROM THE 'DOWNSIZING BEST PRACTICES' COMPANIES
In the late 1990s, the US government conducted a study on the downsizing practices of firms
(including major companies in the country). The study provided many interesting insights into the
practice and the associated problems. It was found that the formulation and communication of a
proper planning and downsizing strategy, the support of senior leaders, incentive and compensation
planning and effective monitoring systems were the key factors for successful downsizing.
In many organizations where downsizing was successfully implemented and yielded positive results,
it was found that senior leaders had been actively involved in the downsizing process. Though the
downsizing methods used varied from organization to organization, the active involvement of senior
employees helped achieve downsizing goals and objectives with little loss in quality or quantity of
service. The presence and accessibility of senior leaders had a positive impact on employees - those
who were downsized as well as the survivors. According to a best practice company source,
"Managers at all levels need to be held accountable for - and need to be committed to - managing
their surplus employees in a humane, objective, and appropriate manner. While HR is perceived to
have provided outstanding service, it is the managers' behavior that will have the most impact." In
many companies, consistent and committed leadership helped employees overcome organizational
change caused by downsizing.
HR managers in these companies participated actively in the overall downsizing exercise. They
developed a employee plan for downsizing, which covered issues such as attrition management and
workforce distribution in the organization. The plan also included the identification of skills needed
by employees to take new responsibilities and the development of training and reskilling programs
for employees. Since it may be necessary to acquire other skills in the future, the plan also
addressed the issue of recruitment planning.
Communication was found to be a primary success factor of effective downsizing programs.
According to a survey conducted in major US companies, 79% of the respondents revealed that
they mostly used letters and memorandums from senior managers to communicate information
17

18. regarding restructuring or downsizing to employees. However, only 29% of the respondents agreed
that this type of communication was effective.
The survey report suggested that face-to-face communication (such as briefings by managers and
small group meetings) was a more appropriate technique for dealing with a subject as traumatic (to
employees) as downsizing. According to best practice companies, employees expected senior
leaders to communicate openly and honestly about the circumstances the company was facing
(which led to downsizing).
These companies also achieved a proper balance between formal and informal forms of
communication. A few common methods of communication adopted by these companies included
small meetings, face to face interaction, one-on-one discussion, breakfast gatherings, all staff
meetings, video conferencing and informal employee dialogue sessions, use of newsletters, videos,
telephone hotlines, fax, memoranda, e-mail and bulletin boards; and brochures and guides to
educate employees about the downsizing process, employee rights and tips for surviving the
situation.
Many organizations encouraged employees to voice their ideas, concerns or suggestions regarding
the downsizing process. According to many best practice organizations, employee inputs contributed
considerably to the success of their downsizing activities as they frequently gave valuable ideas
regarding the restructuring, increase in production, and assistance required by employees during
downsizing.
Advance planning for downsizing also contributed to the success of a downsizing exercise. Many
successful organizations planned in advance for the downsizing exercise, clearly defining every
aspect of the process. Best practice companies involved employee union representatives in
planning. These companies felt it was necessary to involve labor representatives in the planning
process to prevent and resolve conflicts during downsizing.
According to a survey report, information that was not required by companies for their normal day-
to-day operations, became critical when downsizing. This information had to be acquired from
internal as well as external sources (the HR department was responsible for providing it). From
external sources, downsizing companies needed to gather information regarding successful
downsizing processes of other organizations and various opportunities available for employees
outside the organization. And from internal sources, such companies need to gather demographic
data (such as rank, pay grade, years of service, age, gender and retirement eligibility) on the entire
workforce. In addition, they required information regarding number of employees that were
normally expected to resign or be terminated, the number of employees eligible for early
retirement, and the impact of downsizing on women, minorities, disabled employees and old
employees.
The best practice organizations gathered information useful for effective downsizing from all
possible sources. Some organizations developed an inventory of employee skills to help
management take informed decisions during downsizing, restructuring or staffing. Many best
practice organizations developed HR information systems that saved management's time during
downsizing or major restructuring by giving ready access to employee information.
The major steps in the downsizing process included adopting an appropriate method of downsizing,
training managers about their role in downsizing, offering career transition assistance to downsized
employees, and providing support to survivors. The various techniques of downsizing adopted by
organizations included attrition, voluntary retirement, leave without pay or involuntary separation
(layoffs). According to many organizations, a successful downsizing process required the
simultaneous use of different downsizing techniques. Many companies offered assistance to
downsized employees and survivors, to help them cope with their situation.
Some techniques considered by organizations in lieu of downsizing included overtime restrictions,
union contract changes, cuts in pay, furloughs, shortened workweeks, and job sharing. All these
approaches were a part of the 'shared pain' approach of employees, who preferred to share the pain
of their co-workers rather than see them be laid-off. Training provided to managers to help them
play their role effectively in the downsizing process mainly included formal classroom training and
written guidance (on issues that managers were expected to deal with, when downsizing). The
primary focus of these training sessions was on dealing with violence in the workplace during
18

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

20. 23. GE to Layoff 1,000, www.wspa.com, July 2002.
24. DiCarlo Lisa, US Airlines on Course with Loan Guarantee, www.forbes.com, July 2002.
25. M.Song Kyung, Boeing Tells 600 More of Layoffs Today, http://seattletimes.nwsource.com,
August 2002.
26. Gomez Armando, The Ups and Downs of Downsizing, www.askmen.com, September 2002.
27. Carmaker Jaguar to Cut 400 Jobs, http://story.news.yahoo.com, September 2002.
28. Telecom Giant Sheds Scots Jobs, http://news.bbc.co.uk, September 2002.
29. Dresdner to Cut 3,000 Jobs, http://news.bbc.co.uk, September 2002.
30. Leicester John, Alactel to Cut 10,000 More Jobs, http://story.news.yahoo.com, September
2002.
31. Noguchi Yuki, With Sales Down, Ciena Cuts Another Round of Workers,
www.washingtonpost.com, September 2002.
32. www.geocities.com
33. http://govinfo.library.unt.edu
34. www.greylockassociates.com
35. www.whatis.com
36. www.shrm.org
37. www.cio.com
38. www.shrm.org
39. www.forbes.com
40. www.orst.edu
41. www.humanresources.about.com
42. www.business2.com
43. www.businessweek.com
44. www.business-minds.com
45. www.themanagementor.com
46. www.bpcinc.com
47. http://members.aol.com
48. www.doleta.gov
49. www.msnbc.com
The Indian Call Center Journey
“The call center business appears to be going the dot-com way with a lot of big names pumping in
dough. Ultimately, only the fittest will survive.”
- A Mumbai based call center agent, in 2001.
CALL CENTERS FARE BADLY
In the beginning of 1999, the teleworking industry had been hailed as ‘the opportunity’ for Indian
corporates in the new millennium. In late 2000, a NASSCOM[1]
study forecast that by 2008, the
Indian IT enabled services business[2]
was set to reach great heights.
Noted Massachusetts Institute of Technology (MIT) scholar, Michael Dertouzos
remarked that India could boost its GDP by a trillion dollars through the IT-
enabled services sector. Call center (an integral part of IT-enabled services)
revenues were projected to grow from Rs 24 bn in 2000 to Rs 200 bn by 2010.
20

21. During 2000-01, over a hundred call centers were established in India ranging
from 5000 sq. ft. to 100,000 sq. ft. in area involving investments of over Rs 12
bn. However, by early 2001, things seemed to have taken a totally different turn.
The reality of the Indian call center experience was manifested in rows after rows of cubicles devoid
of personnel in the call centers. There just was no business coming in. In centers which did retain
the employees, they were seen sitting idle, waiting endlessly for the calls to come.
Estimates indicated that the industry was saddled with idle capacity worth almost $ 75-100 mn.
Owners of a substantial number of such centers were on the lookout for buyers. It was surprising
that call centers were having problems in recruiting suitable entry-level agents even with attractive
salaries being offered.
The human resource exodus added to the industry’s misery. Given the large number of unemployed
young people in the country, the attrition rate of over 50% (in some cases) was rather surprising.
The industry, which was supposed to generate substantial employment for the country, was literally
down in the dumps - much to the chagrin of industry experts, the Government, the media and
above all, the players involved. The future prospects of the call center business seemed to be rather
bleak indeed.
CALL CENTER BASICS
In 2001, the global call center industry was worth $ 800 mn spread across around 100,000 units. It
was expected to touch the 300,000 level by 2002 employing approximately 18 mn people.
Broadly speaking, a call center was a facility handling large volumes of inbound
and outbound telephone calls, manned by ‘agents,’ (the people working at the
center). In certain setups, the caller and the call center shared costs, while in
certain other cases, the clients bore the call’s cost.
The call center could be situated anywhere in the world, irrespective of the client
company’s customer base. Call centers date back to the 1970s, when the
travel/hospitality industry in the US began to centralize their reservation centers.
With the rise of catalog shopping and outbound telemarketing, call centers became necessary for
many industries. Each industry had its own way of operating these centers, with its own standards
for quality, and its own preferred technologies.
The total number of people who worked at the center at any given point of time were referred to as
‘seats.’ A center could range from a small 5-10 seat set-up to a huge set-up with 500-2,000 seats.
The calls could be for customer service, sales, marketing or technical support in areas such as
airline/hotel reservations, banking or regarding telemarketing, market research, etc. For instance,
while a FMCG company could use the call centers for better customer relationship management, for
a biotechnology company, the task could be of verifying genetic databases. (Refer Table I).
Call centers began as huge establishments managing large volumes of communications and traffic.
These centers were generally set up as large rooms, with workstations, interactive voice response
systems, an EPABX[3]
, headsets hooked into a large telecom switch and one or more supervisor
stations. (Refer Table II). The center was either an independent entity, or was linked with other
centers or to a corporate data network, including mainframes, microcomputers and LANs[4]
.
The Indian Call Center Journey
<<Previous
21

22. TABLE I
BENEFITS OF A CALL-CENTER
• Enhances the customer base and business prospects
• Offers an economical means of reaching diverse and widely
distributed customer group
• Fine-tunes offerings to specific customer groups by
specialized and focussed assistance
• Allows customers easy access to experts
• Facilitates business round the clock and in any geographical
region
• Allows a company to reduce the overheads of brick and
mortar branches
Source: Compiled from various sources.
TABLE II
CALL CENTER CLASSIFICATION
• Voice call center with phones and computers.
• E-mail call center with leased lines and computers.
• Web-based call centers using internet chat facilities with
customers.
• Regional call centers handling calls from local clients.
• Global call centers handling calls from across the world.
Source: Compiled from various sources.
Call centers could either be ‘captive/in-house’ or in form of an ‘outsourced bureau.’ Captive call
centers were typically used by various segments like insurance, investments and securities, retail
banking, other financial services, telecommunications, technology, utilities, manufacturing, travel
and tourism, transport, entertainment, healthcare and education etc.
Outsourcing bureaus were outfits with prior experience in running call centers. These helped the
new players in dealing with complex labor issues, assisted in using latest technologies, helped in
lowering the operating expenses and financial risks. Outsourced bureau operators were utilized by
companies at various stages viz. setting up of the center, internal infrastructure revamps, excess
traffic situations etc.
INDIAN CALL CENTERS – MYTHS AND REALITIES
There were many reasons why India was considered an attractive destination to set up call centers.
The boom in the Indian information technology sector in the mid 1990s led to the country’s IT
strengths being recognized all over the world.
Moreover, India had the largest English-speaking population after the US and had
a vast workforce of educated, reasonably tech-savvy personnel. In a call center,
manpower typically accounted for 55-60% of the total costs in the US and
European markets - in India, the manpower cost was approximately one-tenth of
this.
While per agent cost in US worked out to approximately $ 40,000, in India it was
only $ 5,000. This was cited to be the biggest advantage India could offer to the
MNCs. Apart from these, the Government’s pro call center industry approach and
a virtual 12-hour time zone difference with the US added to India’s advantages.
22

23. There were a host of players in the Indian call center industry. Apart from the pioneers British
Airways, GE and Swiss Air, HLL, BPL, Godrej Soaps, Global Tele-Systems, Wipro, ICICI Banking
Corporation, American Express, Bank of America, Citibank, ABN AMRO, Global Trust, Deutsche
Bank, Airtel, and Bharati BT were the other major players in the call-center business.
After the projections of the NASSCOM-McKinsey report were made public, many people began
thinking of entering the call center business. (Refer Table III). During this rush to make money from
the call center ‘wave,’ NASSCOM received queries from many people with spare cash and space,
including lorry-fleet operators, garment exporters, leather merchants, tyre distributors and
plantation owners among others.
TABLE III
THE INDIAN CALL-CENTER MILESTONES
Mid
1990s GE, Swiss Air, British Airways set up captive call center units
for their global needs.
May-99
Following increasing interest in the IT-enabled services
sector, NASSCOM held the first IT-enabled services meet.
Over 600 participant firms plan to set up medical
transcription outfits and call centers.
Dec-99 A NASSCOM-McKinsey report says that remote services
could generate $ 18 billion of annual revenues by 2008.
May-00 Venture Capitalists rush in. Make huge investments in call
centers.
Sep-00
More than 1,000 participants flock to the NASSCOM meet to
hear about new opportunities in remote services. Though
the medical transcription business is not flourishing, call
centers seen as a big opportunity.
Quarter
4 2000
NASSCOM report, indicates that a center could be set up
with $ 1 million. Gold rush begins. Everyone, from
plantation owners to lorry-fleet operators, wanted to set up
centers.
Quarter
1, 2001
Most of the call centers are waiting for customers. New
ventures still coming up: capacity of between 25 seats and
10,000 seats per company. Small operators discover that
the business is a black hole where investments just
disappear. They look for buyers, strategic partnerships and
joint ventures. Brokers and middlemen make an entry to fix
such deals.
INDIAN CALL CENTERS – MYTHS AND REALITIES contd...
However, most of these people entered the field, without having any idea as to what the business
was all about. Their knowledge regarding the technology involved, the marketing aspects, client
servicing issues etc was very poor.
They assumed that by offering cheaper rates, they would be able to attract clients
easily. They did not realize that more than easy access to capital and real estate,
23

24. the field required experience and a sound business background. Once they
decided to enter the field, they found that most of the capital expenditure (in
form of building up the infrastructure[5]
) occurred even before the first client was
bagged.
These players seemed to have neglected the fact that most successful call centers
were quite large and had either some experience in the form of promoters having
worked abroad in similar ventures or previous experience with such ventures or
were subsidiaries of foreign companies. The real trouble started when these
companies began soliciting clients.
As call centers were a new line of business in India, the lack of track record forced the clients to go
for much detailed and prolonged studies of the Indian partners. Many US clients insisted on a strict
inspection of the facilities offered, such as work-areas, cafeterias and even the restrooms. The
clients expected to be shown detailed Service Level Agreements (SLAs)[6]
, which a majority of the
Indian firms could not manage.
Under these circumstances, no US company was willing to risk giving business to amateurs at the
cost of losing their customers. Because of the inadequate investments in technology, lack of
processes to scale the business[7]
and the lack of management capabilities, most of the Indian
players were unable to get international customers.
Even for those who did manage to rope in some clients, the business was limited. As if these
problems were not enough, the players hit another roadblock - this time in form of the high labor
turnover problem. Agent performance was the deciding factor in the success of any call center.
Companies had recognized agents as one of the most important and influential points of contact
between the business and the customer.
However, it was this very set of people whom the Indian call centers were finding extremely difficult
to recruit and more importantly, retain. In 2000, the average attrition rate in the industry was 40-
45%, with about 10-15% of the staff quitting within the first two months itself.
Even though attrition rates were very high in this industry worldwide, the same trend was not
expected to emerge in India, as the unemployment levels were much higher. The reasons were not
very hard to understand. In a eight-and-a-half hour shift, the agents had to attend calls for seven-
and-a-half hours.
INDIAN CALL CENTERS – MYTHS AND REALITIES contd...
The work was highly stressful and monotonous with frequent night shifts. A typical call center agent
could be described as being ‘overworked, underpaid, stressed-out and thoroughly bored.’ The
agents were frequently reported to develop an identity crisis because of the ‘dual personality’ they
had to adopt.
They had to take on European/US names or abbreviate their own names and
acquire foreign accents in order to pose as ‘locals.’ The odd timings took a toll on
their health with many agents complaining of their biological clocks being
disturbed. (Especially the ones in night shifts).
Job security was another major problem, with agents being fired frequently for
not being able to adhere to the strict accuracy standards. (Not more than one
mistake per 100 computer lines.) The industry did not offer any creative work or
growth opportunities to keep the workers motivated.
The scope for growth was very limited. For instance, in a 426-seat center, there were 400 agents,
20 team leaders, four service delivery leaders, one head of department and one head of business.
Thus, going up the hierarchy was almost impossible for the agents.
24

25. Analysts remarked that the fault was mainly in the recruitment, training, and career progression
policies of the call centers. Organizations that first set up call centers in India were able to pick and
choose the best talent available.
The entry norms established at this point were - a maximum age limit of 25 years, a minimum
qualification of a university degree, English medium school basic education and a preference to
candidates belonging to westernized and well-off upper middle class families. The companies hence
did not have to spend too much time and effort in training the new recruits on the two important
aspects of a good level of spoken and written English and a good exposure to western culture and
traditions.
However, companies soon realized that people with such backgrounds generally had much higher
aspirations in life. While they were initially excited to work in the excellent working environment of a
multinational company for a few months, they were not willing to make a career in the call center
industry. They generally got fed up and left within a few months when the excitement waned.
A consistently high attrition rate affected not only a center’s profits but also customer service and
satisfaction. This was because a new agent normally took a few months before becoming as
proficient as an experienced one. This meant that opportunities for providing higher levels of
customer service were lost on account of high staff turnover
FUTURE PROSPECTS
The Indian call center majors were trying to handle the labor exodus through various measures.
Foremost amongst these was the move to employ people from social and academic backgrounds
different from the norms set earlier.
Young people passing out of English medium high schools and universities and
housewives and back-to-work mothers looking for suitable opportunities were
identified as two of the biggest possible recruitment pools for the industry.
Such students with a good basic level of English could be trained easily to improve
their accents, pronunciation, grammar, spelling and diction. They could be trained
to become familiar with western culture and traditions. The housewives and back-
to-work mothers’ pool could also be developed into excellent resources.
This had been successfully tried out in the US and European markets, where call centers employed a
large number of housewives and back-to-work mothers. Another solution being thought about was
to recruit people from non-metros, as people from these places were deemed to be more likely to
stay with the organization, though being more difficult to recruit and expensive to train. Even as the
people and infrastructure problems were being tackled, a host of other issues had cropped up,
posing threats for the Indian call centers.
The promise of cheap, English speaking and technically aware labor from India was suddenly not as
lucrative in the international markets. A survey of Fortune 1,000 companies on their outsourcing
concerns showed that cost-reduction was not the most important criterion for selecting an
outsourcing partner. This did not augur well for a country banking on its cost competitiveness. Also,
China was fast emerging as a major threat to India, as it had embarked on a massive plan to train
people in English to overcome its handicap in the language. In February 2001, Niels Kjellerup, editor
and publisher of ‘Call Center Managers Forum’ came out strongly against India being promoted as
an ideal place to set up call centers.
He said: “The English spoken by Indians is a very heavy dialect – in fact, in face to face
conversations, I found it very difficult to understand what was said. How will this play out over the
telephone with people much less educated that my conversation partners? The non-existent
customer service culture in India will make training of reps mandatory and difficult, since such a
luxury as service is not part of everyday life in India. The infrastructure is bad, no, make that
antiquated: The attempts by a major US corporation to set up a satellite link has so far been
expensive and not very successful. Electricity infrastructure is going from bad to worse – in fact
25

26. during my stay at a 5 star hotel and at the corporate HQ of a big MNC, we had on average 7 black-
outs a day where the generators would kick in after 2-3 seconds.
The telephony system is analog and inadequate. It took on average three attempts just to get a line
of out my hotel. The telecom market is not deregulated, and international calls are very expensive.
The business culture and the mix of Government intervention will be a cultural shock for Western
business people with no previous experience. Add to this a lack of a call center industry and very
few people with call center experience which makes it very hard to recruit call center managers with
a proven track record.” Despite the mounting criticisms and worries, hope still existed for the Indian
call center industry. Analysts remarked that the call center business was in the midst of a transition,
wherein only the fundamentally strong players would remain in the fray after an inevitable
‘shakeout.’
Unlike other industries, the shakeout in this industry was not only because of an over supply of call
center providers, but also because of the quality of supply offered. In spite of the downturn, the call
center business was considered to hold a lot of potential by many corporates. With the US economy
facing a slowdown, the need for US companies to outsource was expected to be even higher. The
Reliance group was planning to open call centers in 10 cities across the country. Other companies
including Spectramind and Global Telesystems planned to either enter or enhance their presence in
the business. Whether the dream of call centers contributing to substantial economic growth for
India would turn into reality was something only time would reveal.
QUESTIONS FOR DISCUSSION
1. Prepare a note on the functioning of a call center and comment on its necessity and viability in
the Indian context.
2. India had certain inherent advantages because of which, it had been identified as the preferred
destination on a global basis for outsourcing IT services. However, these very advantages were
proving to be its drawbacks in the early 21st century. Critically examine the above statement giving
reasons to support your stand.
3. What were the problems being faced on the human resources front by the call centers? How were
the players planning to address them?
EXHIBIT I
CALL CENTER TERMINOLOGY
• Automatic Call Distribution (ACD): The ACD processes all inbound
telephone calls on a first come, first served basis. The system answers each call
immediately and, if need be, holds it in a queue till the time an agent is
available. When an agent becomes free, he/she services the first caller in the
queue. A system can be configured to offer different kinds of treatment to
different callers. For example, people calling long distance can be given priority
handling. Or calls from customers placing orders can be taken before than those
seeking technical support. By providing sequencing and uniform distribution of
incoming calls among multiple agents in a call center, ACDs offer time/labor
savings and enhance productivity.
• Interactive Voice Response (IVR): IVR applications support the automated
retrieval of stored data. These usually took the form of pre-stored messages
saying ‘Press 1 for this or Press 2 for that.’ IVR applications range from basic
inquiry to the most sophisticated speech recognition applications.
• Computer Telephony (CTI): CTI is one of the most common features of call
center environments. They can either be a simple screen pop-up window, a
sophisticated call control algorithm that can search for the last agent that spoke
to the caller, or a predictive dialing solution that doubles the efficiency of
outbound calling. With a simple click of a mouse, a call center agent can quickly
26

27. move between a customer profile, product information, customer history, order
entry, fulfillment request, template cover letters and quote entry, among other
fields.
• Web Integration: The integration of Web technology in call centers offers
personalized, time and cost effective customer service. Organizations can either
have a call back button on their Web page whereby a call is automatically made
to the customer or have a seamless addition of voice over IP to the web
application.
• Reporting Systems: Different reporting applications are used to optimize the
use of different communications platforms. Depending upon the firm’s
specifications, either simple proprietary tools could be used or advanced tools
that blend information from multiple communications and information systems
platforms can be adopted.
• Workflow Management Tools: Coordinating telephony applications with
information systems applications, workflow management tools assist call center
supervisors to script and manage employee activity. For example, selecting the
best agent for handling particular types of calls.
Source : ICMR
ADDITIONAL READINGS & REFERENCES
1. Mukerjea D.N. & Dhawan Radha, Teleworking - The hottest business opportunity
for India, Business World, January 7, 1999.
2. Chandrashekhar S. & Lahiri Jaideep, Connecting to customers through call
centers, Business Today, June 22, 1999.
3. Jayaram Anup, Can I help you sir?, Business Today, November 29, 1999.
4. Carver John, Staff turnover – friend or foe?, www.callcentres.com, February 18,
2000.
5. Kumar Rahul, Finding the Right Mix, Computer Today, November 1, 2000.
6. Rajawat K. Yatish & Kulkarni Sangeeta, No-fuss gus, Economic Times, December
1, 2000.
7. Kjellerup Niels. Myth & Reality about Contact Centers in India,
www.callcentres.com, February 20, 2001.
8. Agnihotri Peeyush, How can I help you, sir?, Tribune India, February 12, 2001.
9. Singh Shelley & Srinivas Alam, Waiting for the call, Business World, May 28,
2001.
10. Sarma Uma & Ramavat Mona, Call centers attract but disappoint, The Economic
Times.
11. I.T Enabled Services - The Indian Scenario, www.teleworkingindia.com
12. Call Centers: Not-so dreamy affair, www.indiatimes.com.
13. Call centers, www.teleworkingindia.com.
14. The Never Ending Search, www.voicendata.com.
Indian Airlines HR Problems
“There could scarcely be a more undisciplined bunch of workers than IA’s 22,000 employees.”
- Business India, January 25, 1999.
27

28. FLYING LOW
Indian Airlines (IA) – the name of India’s national carrier conjured up an image of a monopoly gone
berserk with the absolute power it had over the market. Continual losses over the years, frequent
human resource problems and gross mismanagement were just some of the few problems plagued
the company.
Widespread media coverage regarding the frequent strikes by IA pilots not only
reflected the adamant attitude of the pilots, but also resulted in increased public
resentment towards the airline. IA’s recurring human resource problems were
attributed to its lack of proper manpower planning and underutilization of existing
manpower.
The recruitment and creation of posts in IA was done without proper scientific
analysis of the manpower requirements of the organization. IA’s employee unions
were rather infamous for resorting to industrial action on the slightest pretext and
their arm-twisting tactics to get their demands accepted by the management.
During the 1990s, the Government took various steps to turn around IA and initiated talks for its
disinvestment. Amidst strong opposition by the employees, the disinvestment plans dragged on
endlessly well into mid 2001.
The IA story shows how poor management, especially in the human resources area, could spell
doom even for a Rs 40 bn monopoly.
BACKGROUND NOTE
IA was formed in May 1953 with the nationalization of the airlines industry through the Air
Corporations Act. Indian Airlines Corporation and Air India International were established and the
assets of the then existing nine airline companies were transferred to these two entities. While Air
India provided international air services, IA and its subsidiary, Alliance Air, provided domestic air
services. In 1990, Vayudoot, a low-capacity and short-haul domestic airline with huge long-term
liabilities, was merged with IA.
IA’s network ranged from Kuwait in the west to Singapore in the east, covering 75 destinations (59
within India, 16 abroad). Its international network covered Kuwait, Oman, UAE, Qatar and Bahrain
in West Asia; Thailand, Singapore and Malaysia in South East Asia; and Pakistan, Nepal,
Bangladesh, Myanmar, Sri Lanka and Maldives in the South Asian subcontinent. Between
themselves, IA and Alliance Air carried over 7.5 million passengers annually. In 1999, the company
had a fleet strength of 55 aircraft - 11 Airbus A300s, 30 Airbus A320s, 11 Boeing B737s and 3
Dorniers D0228.
In 1994, the Air Corporation Act was repealed and air transport was thrown open to private players.
Many big corporate houses entered the fray and IA saw a mass exodus of its pilots to private
airlines. To counter increasing competition IA launched a new image building advertisement
campaign. It also improved its services by strictly adhering to flight schedules and providing better
in-flight and ground services. It also launched several other new aircraft, with a new, younger, and
more dynamic in flight crew. These initiatives were soon rewarded in form of 17% increase in
passenger revenues during the year 1994.
However, IA could not sustain these improvements. Competitors like Sahara and Jet Airways (Jet)
provided better services and network. Unable to match the performance of these airlines IA faced
severe criticism for its inefficiency and excessive expenditure human resources. Staff cost increased
by an alarming Rs 5.9 bn during 1994-98. These costs were responsible to a great extent for the
company’s frequent losses. By 1999 the losses touched Rs 7.5 bn.
In the next few years, private players such as East West, NEPC, and Damania had to close shop due
to huge losses. Jet was the only player that was able to sustain itself. IA’s market share, however
continued to drop. In 1999, while IA’s market share was 47%, the share of private airlines reached
28

29. 53%.
Unnecessary interference by the Ministry of Civil Aviation was a major cause of concern for IA. This
interference ranged from deciding on the crew’s quality to major technical decisions in which the
Ministry did not even have the necessary expertise. IA had to operate flights in the North-East at
highly subsidized fares to fulfill its social objectives of connecting these regions with the rest of the
country. These flights contributed to the IA’s losses over the years. As the carrier’s balance sheet
was heavily skewed towards debt with an equity base of Rs 1.05 bn in 1999 as against long term
loans of Rs 28 bn, heavy interest outflows of Rs 1.99 bn further increased the losses.
IA could blame many of its problems on competitive pressures or political interference; but it could
not deny responsibility for its human resource problems. A report by the Comptroller and Auditor
General of India stated, “Manpower planning in any organization should depend on the periodic and
realistic assessment of the manpower needs, need-based recruitment, optimum utilization of the
recruited personnel and abolition of surplus and redundant posts. Identification of the qualifications
appropriate to all the posts is a basic requirement of efficient human resource management. IA was
found grossly deficient in all these aspects.”
‘FIGHTER’ PILOTS?
IA’s eight unions were notorious for their defiant attitude and their use of unscrupulous methods to
force the management to agree to all their demands. Strikes, go-slow agitations and wage
negotiations were common.
For each strike there was a different reason, but every strike it was about
pressurizing IA for more money. From November 1989 to June 1992, there were
13 agitations by different unions. During December 1992-January 1993, there
was a 46-day strike by the pilots and yet another one in November 1994. The
cavalier attitude of the IA pilots was particularly evident in the agitation in April
1995.
The pilots began the agitation demanding higher allowances for flying in
international sectors. This demand was turned down. They then refused to fly with
people re-employed on a contract basis. Thereafter they went on a strike, saying
that the cabin crew earned higher wages than them and that they would not fly
until this issue was addressed.
Due to adamant behaviour of pilots many of the cabin crew and the airhostesses had to be off-
loaded at the last moment from aircrafts. In 1996, there was another agitation, with many pilots
reporting sick at the same time. Medical examiners, who were sent to check these pilots, found that
most of these were false claims.
Some of the pilots were completely fit; others somehow managed to produce medical certificates to
corroborate their claims. In January 1997, there was another strike by the pilots, this time asking
for increased foreign allowances, fixed flying hours, free meals and wage parity with Alliance Air.
Though the strike was called off within a week, it again raised questions regarding IA’s vulnerability.
April 2000 saw another go-slow agitation by IA’s aircraft engineers who were demanding pay
revision and a change in the career progression pattern[1]
. The strategies adopted by IA to overcome
these problems were severely criticized by analysts over the years. Analysts noted that the people
heading the airline were more interested in making peace with the unions than looking at the
company’s long-term benefits.
Russy Mody (Mody), who joined IA as chairman in November 1994, made efforts to appease the
unions by proposing to bring their salaries on par with those of Air India employees. This was
strongly opposed by the board of directors, in view of the mounting losses. Mody also proposed to
increase the age of retirement from 58 to 60 to control the exodus of pilots.
However, government rejected Mody’s plans[2]
. When Probir Sen (Sen) took over as chairman and
29