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The Human side of Downsizing

India Inc is marching ahead and amidst all the technology, FDI inflows and global competition that one hears about, it’s the human capital, which is central to any company’s long-term strategy. However with the globalization of the Indian economy and the realization of the developed world about the availability of talented manpower at a discounted cost, opportunities are abundant for the talented employees.

Today, neither employees nor employers expect long-term relationships. Employees want to move from organizations to organizations , to further their career ambitions, to wriggle out of out of unsatisfying situations, to leverage experience in one organization for a better job in another. Employers, on the other hand, don’t want to be saddled with employees who fail to meet the demanding expectations of the organization stemming out of stiff competition or retain stagnant employees who have reached the end of the learning curve journey and do not add much value to the organization.

However employers in sluggish, loss making, low margin organizations have a real struggle on hand. They have to retain their employees, keep them motivated and trained to meet the challenges of competition. However the expectations of the employees are always on the rise. Rarely have we heard of employees accepting the downturn of the company and reducing their salaries. A few companies tried this by force in 2001- 2002 when there was a recession in the IT industry but without much success. I was one of them who tried it out at Co Systems India but with some success. Irrespective of the fortunes of the company employees want an increase in their salaries and a rise in their standard of living and status.

Employers are at a cross road. By not giving into the demands of the employees they run the risk of losing talented employees as the less talented are more likely to stay. To meet the challenges of competition and deliver superior results they need talented employees to stay on. But to give in to their unexpressed demands and keep increasing employee costs adds to their costs and makes them less competitive in the market. It’s a delicate balance that HR managers and organizations that will have to do. Newer entrants are fighting for their share of pie in the already crowded market. The Indian customer is cost conscious and is not willing to pay the extra pie unless he sees value for money.

The key to success in the market is to be cost competitive and constantly look for opportunities to reduce costs. The consumer price index (inflation) has constantly been lowering but the whole sale price index has been on the rise. What this means is that while the input costs have gone up, organizations have not been able to pass on the costs to the consumer. They have had to absorb the costs and cut down their margins.

Paying the price

A large Indian Paint company bought an International Paint Company and suddenly had its presence felt in 11 countries in the sub continent. In most mergers and acquisitions “employees” had to pay the penalty. Due to integration of two companies some functions / departments and employees become redundant and face the prospect of redundancy and separation. However this is what the CEO had this to say on his views of people and lay off.

“At present, the employee cost is a little high and actual growth is low. But the trade-off is clear. To grow we need people. It is better to carry these people as they are good. They are the people who will be there for 20-30 years and will make us successful in their local market. I strongly believe that it is better to be tolerant on people issues because we can be aggressive in cutting other costs. I know that if I get rid of 100 people, I can make a straight $1 million profit, but then this will paralyse operations, make people feel insecure and no other discussion will happen except who lost his job and who is next.”

The human side of lay off / retrenchment / downsizing ?

A lay off of any employee is usually a result of economic stresses, a company’s change of direction and cost cutting. Lay off is a dirty business, but necessary for a company to survive and compete successfully. Jobs lasting a lifetime no longer exist. Today an employee lay off isn’t a black mark on a employee’s record, but an unpleasant experience. By definition, an employee isn’t at fault when you lay him off. His performance and behaviour have been good. Unfortunately he’s just in the wrong place at the wrong time. It is here that the Human Resources professionals will have to step in and help the company manage this change. Sure this situation is going to whip up a lot of people emotions in the company at all levels. The realisation is that for a company to move ahead, its employees need to move in tandem. Everything comes to a naught if the employees don’t care about where the company is going.

The essence of effective people management is managing emotions,” James K. Clifton, chairman and CEO of the Gallup Organization, told the Society for Human Resource Management Foundation at its Thought Leaders retreat in 2002.

Another author Thomas A Hickok has said “First, it clearly appears that power has shifted away from rank-and-file employees in the direction of top management/ownership. Accompanying this change is a shift in emphasis away from the well-being of individuals in the direction of the pre-eminence and predominance of the organization as a whole. Second, it appears working relationships have changed away from being “familial” in the direction of being more competitive. Third, the employer-employee relationship has moved away from long-term and stable in the direction of short-term and contingent.”

Hickok suggested five simple question areas that organizational leaders who are interested in probing the moral and spiritual dimensions of downsizing might usefully consider. These include ensuring the fundamental decency of the approach being considered, engaging in appropriate dialogue, thinking through the consequences for those who may be adversely affected, having ready explanations for multiple constituencies, and offering a realistic opportunity for a better future for the organization and the organization’s stakeholders.

Employee Engagement

Organisations need to engage their employees, keep them constantly informed on the progress of the company, the competitive market conditions, the progress of the competitors and share the financial performance of the company. The key is to be transparent, let employees know the status and to prepare them for any eventualities. Organisations have to win the trust of its employees and establish its credibility. The engagement challenge is about how an employee feels about the work experience, about how he or she is treated. It has a lot to do with emotions. Research after research have concluded that employee emotions are fundamentally related to—and actually drive—bottom-line success in a company.

There is a constant struggle to win trust and establish credibility. You can have the best of the programs in the world—all of it can be lost in a second if the organization does something to destroy the credibility it has built.

A HR Manager of an organization that went through some downsizing exercise shared his experience : “The mistake we made is that we did not work very hard in making the team members understand the competitive situation we were in and why the discussion breaks had to end. We should have been doing more education about what the future might be for them – They (employees) wanted to understand the company’s business strategy and where they fit in.”

It takes a huge commitment in time and energy for organizations engaging their people. But relative to some of the other investments they make, it has a pretty good return.

James K. Clifton, chairman and CEO of the Gallup Organization, told the Society for Human Resource Management Foundation at its Thought Leaders retreat in 2002 : “I think the next decade is going to be about the emotional economy of the workplace,” he said.

HR has an enormous responsibility to play the conscience keeper in Organisations – frankly Im afraid that there are very few who play this role. HR needs to balance the needs of both the Organisation and its people in way that is seen as fair, consistent and mutual. Most HR Managers often quote Dave Ulrich’s 4 pillar model and often quote the Strategic Business Partner but rarely practice “Employee Champion”role. With the dwindling of the Unions and their power, there is nobody to VOICE the Employees in Corporate world today. As much as we swear by Democracy in the outside world, its more and more an authoritarian world in Corporate world.

I have heard of pathetic stories of how employees have been laid off unceremoniously with least dignity & respect. Recently I heard of a person who grew from the ranks and worked in the R&D Department of a reputed MNC and had served the organisation for nearly 11 years. One fine day he was told that they cannot afford to carry him further in the organisation because they had to cut costs as no Projects was coming to India and was told that he will have to quit and that he will be given 6 months pay (of which 3 months is Notice Period) and that he must leave the organisation that same day. The HR Business Partner did not meet the person, nor did anyone senior meet him and explain to him the rationale and instead asked his Manager & the HR Operations SPOC to speak to the candidate, explain to him the severance process & package (pittance) and help ease him out. What an irony. The HR BP is busy and no time to talk to a person who sweated it out for 11 years and for no fault of his has to leave the organisation.

How in-human we have become.

How much is enough:

Standard Indian market practice is One months pay (total including all allowances & bonus) for every year worked + notice period + all other terminal/retiree benefits accrued to them.

At the other extreme – Tata Motors, the country’s largest  &  the oldest automobile companies in India, employs about 27,000 people in the country as on 2015. They had to cut staff by offering a voluntary retirement scheme (VRS) to reduce costs as weak demand and shrinking market share pressure it to streamline its Indian operations. 

Describing the VRS, being offered to all categories of employees, as a ‘people initiative’, Tata Motors said that through this the company’s India operations would “enhance its competitiveness” in a fiercely competitive market.Unlike the usual VRS that entails a one-time payment, the seven-decade old company is offering an attractive package which includes a monthly salary comprising basic and dearness allowance that begins on the date of separation till the employee turns 60. While for employees, this ensures an assured monthly income, for the company it will help avoid taking a one-time financial knock on its books.

The scheme also offers a medical insurance cover for a period of 10 years post separation and normal retirement benefits such as provident fund, gratuity, superannuation, encashment of un-availed leaves and leave travel assistance due but not claimed. (http://www.whatishumanresource.com/voluntary-separations)

In my personal experience I would suggest that to manage downsizing an organization would have to take care of the following:

  • Is it really necessary. Are there no other alternatives? Dont do it just to shore up your yearly forecasts.
  • Be transparent, prepare your employees well in advance, win their trust and confidence.
  • Confide with them about the eventuality and communicate to all employees. Don’t hide any facts.
  • If it becomes inevitable, be fair in identifying employees to be separated and as far as possible reason it out (why me?)
  • Give them sufficient time to depart. Don’t stop them from coming to work the next day.
  • Compensate them adequately for the severance in line with market practice and not driven just by the legal provisions 
  • As said earlier be humane in your approach and treat these employees with dignity and compassion. 
  • Also communicate to the remaining employees what you have done, why you did it and reassure them that you have a turn around plan to turn the fortunes of the organisation
  • Remember that with the advent of Social Media platforms – Facebook, LinkedIn, Glassdoor – disgruntled employees can play havoc to organisations reputation, so it makes sense to prepare a honorable & a dignified exit for employees

Its time that HR Managers play the role of an Employee Champion effectively & true to their conscience and show to the Organisation the Human side of Human Resources Management.


RanjanLRamesh Ranjan is the Founder & Chief Editor of Human Engineers,  an organization being formed to help Organization’s to make the most of its People” and co-creating value thro’  People”

He is a certified CEO / Leadership Coach, Mentor for Startups, Blogger & a Speaker. In a career spanning nearly 3 decades, he has been Head of HR and held leadership positions in India & globally in organisations like Schneider Electric India, American Power Conversion (APC), Chevron Texaco/Caltex India, Praxair India, Co Systems India, Indian Herbs & ITI.

He was the Honorary Secretary of the National HRD Network, Bangalore Chapter – 2000-2002, Cluster Lead – NHRD Bangalore Chapter (Whitefield & ORR) in 2014 and currently theVice President – NHRD Bangalore Chapter. He was the member of the India HR Council of the AMCHAM, New Delhi, Panelist on the Roundtable of HR Directors of Petroleum Companies, ISP Mumbai and Member of the India HR Council of Conference Board.

He strongly believes that HR is not for faint hearted professionals. He believes that “when the going gets tough, the tough gets going” and can be reached at rameshranjan@humanengineers.com



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