• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Lecture 08

Lecture 08






Total Views
Views on SlideShare
Embed Views



0 Embeds 0

No embeds



Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
Post Comment
Edit your comment

    Lecture 08 Lecture 08 Document Transcript

    • Lesson: 8 Emerging Trends Contents: Latest trends in HRM and HRPThis is a tutorial lesson. Using a seminar-discussion format, we will explore currentreadings and other sources of information about the changing nature of Human ResourceManagement (HRM) and, more broadly, the world of work in general. I’ve provided atentative list of topics below, but I would like our explorations to be somewhat flexible sothat we can consider new issues as they arise. Additionally, you may have some issuesthat you would like to explore in further depth and I would like to maintain someflexibility in the course to allow us to explore issues in which you are interested. Here only a few articles from various publications are given below as an example. Youcan refer to business newspapers and periodicals for this lesson.Tentative Topics • New Conceptualisation of Jobs • Alternative Work Arrangements • Balancing Work and Family • Career-Related Issues and Workforce Diversity • Organizational Learning and Knowledge Management • Loyalty (?) and Commitment of Employees: Attracting and Retaining Employees • The High Involvement Workplace • Teamwork in the Workplace • New Pay Practices • Multi-source Performance Feedback (360 degree Feedback) • Downsizing (Rightsizing?) Issues • Expected Issues Relevant to HRM Environmental or labour market changes with which the HR function must address Expected changes in HRM practices in the firm Biggest HRM challenges Legal challenges or concerns Other? • Use of “New” HRM Programs and Practices Changes in design of jobs Changes in work structure from individuals to teams, empowering workers
    • Alternative work arrangements (flexitime, job sharing, telecommuting, etc.) Contingent workforce (temporary workers) Diversity of workforce Attracting and retaining employees Work-life balance programs Restructuring & downsizing Employee attitude surveys Career planning programs (e.g., developing skills, mentoring, succession planning) Continuous learning culture Knowledge of management programs/issuesFew excerpts I am presenting here to give you an idea.Outsourcing & its HR Dimensions by Dr. Aloke K Sen*In to-day’s global village, growth is evident and important for survival of anyorganisation. During the 1990’s, there has been a movement away from vertical growthstrategies toward co-operative contractual relationships with suppliers and even withcompetitors. These relationships range from outsourcing, in which resources arepurchased from outside through long-term contracts instead of being made in house (forexample Hewlett- Packard buys all its laser engines from Canon for HP’s laser jetprinters), to strategic alliances, in which partnerships, technology licensing agreements,and joint ventures supplement a firm’s capabilities (for example, Toshiba has usedstrategic alliances with GE, Siemens, Motorola and Ericsson to become one of theworld’s leading electronic companies).Outsourcing simply means hiring someone from outside the company to perform tasksthat could be done internally. Companies often hire the services of accounting firms, forexample, to take care of financial services. They may hire advertising firms to handlepromotions, software firms to develop data- processing systems, or law firms to handlelegal issues.There are several HR concerns with regard to outsourcing, not the least of which is that ifemployees are likely to lose their jobs when the work is outsourced, morale andproductivity can drop rapidly. To minimise problems, line and HR mangers have to worktogether to define and communicate transition plans, minimise the number of unknowns,and help employees identify their employment options.In the views of HR professionals, the process of outsourcing is different from purchasing,procurement, and subcontracting. According to them outsourcing occurs when acompany contracts with a vendor to perform an activity previously performed by thecompany. In contrast procurement generally means that the company has not performedthe activity before. Outsourcing also has a temporal dimension in that some executivesview outsourcing as permanent. Whereas subcontracted activity is expected to return to
    • the company at some point, outsourcing is not. Outsourcing should be referred as theperformance by outside parties on a recurring basis of HR tasks that would otherwise beperformed in house.In some cases, the outside vendors may actually hire the displaced employees. Forexample, M. W. Kellogg Inc., a petroleum services company based in Houston, recentlyoutsourced its entire clerical staff to the McBer Company, a temporary employmentagency. McBer hired most of Kellogg’s secretarial staff, so even though the people wereemployed by a different company, their job and locations stayed the same. This process isknown as employee leasing. Employee leasing has been growing rapidly. The value ofemployee leasing lies in the fact that an organisation can essentially maintain its workingrelationships but shift the administrative costs of health care, retirement, and otherbenefits to the vendors.The market for providers of outsourced service of all types is growing rapidly. In 1996,American firms spent over $100 billion in outsourced business activities. Globally,outsourcing usage grew by 35 percent for the 12 months during the year 1997. It wasestimated that by 2000, expected to increase to $200 billion. According the HewittAssociates survey of large employers conducted during 1996 found that 93 percent ofrespondents outsourced some of their HR functions. Another survey conducted byAmerican Management Association (AMA) during 1996 confirms that 77 percent offirms outsourced their HR activities up from 60 percent in 1994.The 1997 survey of Human Resource trend in 1700 organization reported that 53 percentplanned to outsource more in the future. HR Departments are facing the classic make orbuy decisions that other functional areas confront when considering the outsourcing ofservices or products.From the review of literature, it has been found that there are five competitive forces thatare driving more companies to outsource some or all of their HR activities (1)Downsizing (2) Rapid growth or decline (3) Globalization (4) Increased competitionand (5) restructuring. Over the past decade, these factors have significantly altered thestrategy and structure of many firms.The Sourcing DecisionWhere should a function be housed? Should it be integrated within the organisation orpurchased from an outside contractor? Outsourcing is purchasing from some one else aproduct or service that had been previously provided internally. Dupont contracts outproject engineering and design to Morrison Knudsen; AT & T contracts its credit cardprocessing to Total System Services and Eastman Kodak its computer services toBusiness land.Outsourcing is becoming an increasingly important part of strategic decision-making andan important way to increase efficiency and often quality. Organisations competing inglobal industries must in particular search worldwide for the most appropriate suppliers.
    • In a study of 30 organisations, outsourcing resulted on average in a 9% reduction in costsand 15% increase in capacity and quality.We should now discuss outsourcing in the Indian context. About 60 percent by value ofa Bajaj vehicle was outsourced. Virtually no components were imported and 70 percentof Bajaj Auto’s requirement was sourced from within the State of Maharashtra.Compared to its competitors, Bajaj Auto’s dependence on vendors was relatively low:over 90% of Hero Honda’s components, for example, were outsourced. At the sametime, the level of outsourcing had begun to creep upwards. According to Arvind Guptaof Bajaj Auto, we used to take 1.9 man-days to make a scooter. Now because ofoutsourcing it has come down to between 1.4 & 1.5 man-days. Of this reduction, 40% isfrom off loading and 60% from productivity increases.TI Cycles had set itself an ambitious target of becoming the number two bicyclemanufacturer by 2000 with sales of 35 lakhs bicycles in the domestic market while at thesame time achieving 40% ROI. TI Cycles singled out a few areas of the value chain forspecial attention and thrust. The company tied up its outsourcing arrangements withAvon Cycles in Punjab and Hamilton Cycles in Mumbai with a view to expanding itsreach in the northern and western markets respectively. With these arrangements, TIreached a stage where its outsourcing was much higher than Hero and Atlas, who weremore vertically integrated. In the late 1990’s, Philips along with Sony took theoutsourcing route.Organisations can benefit from the new concepts of outsourcing by generating maximumreturn on investment through better productivity. Outsourcing lead to reduction in fixedcost, hence a lowering of break – even point on capacity utilisation leading to highersustainability of the company in recessionary market. This also leads to improved cashflow as the investment in fixed cost on tangible fixed assets is reduced.The outsourcing programme is also being practiced in Public & Private Sector enterprisesto raise productivity. Nowadays many companies have outsourced the car-poolingservices. Many leading PSEs have outsourced their maintenance activities (for exampleannual over hauling, major repairs work etc) thus saving huge cost on HR.Outsourcing is a fast and flexible approach to cover resource gaps. As expectationscontinue to rise to higher standards, any business will doubtless continue to benefit fromoutsourcing technical skill. It is a new coinage of an old decision-making model knownas “make or buy”, but outsourcing” has enlarged the dimension of make or buy concept.Quality assurance and cost reductions have become the prerogative for the competitivesustenance in an open international market. Power of outsourcing lies not only, in itscapacity to effect a rapid, instant solution to an organisation’s problems but also in itspotential to help the organisation to re-think its entire way of doing business, even itsreason for existence.The two terms “contracting” and “outsourcing” are used interchangeably but they are notsame at all. Contracting is when a company (buyer) purchases goods or services from
    • another company (supplier or vendor). In this situation the buyer has the control over thesituation and instructs the vendor to work accordingly but in the case of “outsourcing” thebuyer turns over the control (ownership) or the process to the supplier. The buyer asksthe supplier what results it wants and the supplier decides how to achieve that. Inoutsourcing the supplier has the expertise and the economies of scale.During the year 2002, HP Services the software services arm of Hewlett Packard (HP),got a contract for handling consumers product major Procter & Gamble’s global IToutsourcing. At $ 3.5 billion and across 160 countries, this was a large and beautifullystructured deal. While HP gets the IT services part of the deal. P & G will allot thebuilding and real estate management to another player and employee payroll managementand accounts payable to two others. The last three contracts have not been announced asyet. Table-1 provides summary of guidelines for HR Outsourcing using categories thatfollow a chronology similar to the outsourcing phases identified by Professor ScottLever:Table-1Making the Outsourcing DecisionDon’t allow sacred cows. Except for core competencies, all other HR activities should beconsidered as candidates for outsourcing.Determine whether the desire to outsource an activity is driven by its low contribution tocore competencies, influences from the external environment, or poor management of theactivity.Recognize that performance is more important than low HR department head counts orlower costs.Beware of vendors that supply off-the shelf solutions that do not fit the company’s needs.Avoid excessive reliance on vendors.Decide how much control is needed for various HR activities and whether control can beretained with outsourcing.Identify critical personal benefits of outsourcing.Selecting and Negotiating with Outsourcing VendorsAssign a high weighting to vendors’ knowledge of the industry.Perform reference checks of potential vendors.Understand the costs involved in switching vendors for outsourced services.Managing the outsourcing TransitionExpect the internal HR team to resist outsourcing and develop ways of managing thisresistance.
    • Anticipate conflict and develop a plan for resolving it in a manner that supports therelationship with the vendor.Anticipate changes to HR culture and careers.Managing Vendor relationshipsDevelop long-term relationships with outsourcing vendors where such continuity iscritical.Develop staff members to become effective mangers of vendor relationships.Maintain stability of the in-house staff who oversee vendor relationships and understandthe performance expectations originally negotiated.Require competitive bidding for each outsourced service at regular intervals.Monitoring and Evaluating Vendors PerformanceEstablish expectations, measures, and reporting relationships up front for bothoutsourcing parties.Insist on high quality performance by HR vendors.Insist on accurate and frequent status reporting by HR vendors and immediatenotification when problems arise.Establish performance targets for vendors with the assistance of outside consultants whennecessary.Consider internal customer surveys to evaluate vendor performance.Source: Strategic Human Resource Management by Jeffrey A. Mello p.19The choice to outsource some or the entire HR domain is becoming increasinglyimportant for most organisations. Macro-economic and environmental forces havecompelled organisations to restructure and re-examine all management processes,including HR management. In order to contain costs, organisations have beendownsizing, outsourcing and leasing employees, and enhancing productivity. HR’s role isto maintain the relationship between a company and its employees, while implementingthe changes.References1. Jeffrey A. Mello: Strategic Human resource Management, South Western, Australia, 2002.
    • 2. Sumantra Ghoshal, Gita Piramal & Sudeep Budhiraja: World Class in India: A casebook of companies in transformation; Penguin Books, New Delhi, 2001.3. Ranjan Mehrotra: Outsourcing; NIPM Jr. Vol XXIV, No. 1, April – June 2003, Kolkata.4. M.P. Srivastava: Outsourcing: a Phenomenon in State of Transition; IJTD, Vol. XXXII, No. 4, October – December 2002, New Delhi.5. Charles R. Greer: Strategic Human Resource Management; Pearson Education Asia, Delhi, 2001.6. Lynda Gratton & Others: Strategic Human Resource Management: Corporate Rhetoric and Human Reality; Oxford University Press, 1999.7. Bohlander, Snell & Sherman: Managing human Resources; Thomson – South – Western, Australia, 2002.8. J. David Manager & Thomas L. Wheelan: Strategic Management; Sixth – Ed; Addison – Weslay, Delhi, 1999.HUMAN RESOURCES PLANNING & DOWNSIZINGBy Dr. Aloke K SenOver the past decade downsizing has been in full swing and reductions in the work forcebecame a fact of life in the world of work. For many organizations, these actions werenecessary to improve profitability, eliminate obsolete functions and reduce overstaffedareas. As organizations move to-wards more strategic workforce management,downsizing will remain part of the work force landscape, but the catalyst for it willchange. Downsizing began as the strategy of sickly companies shedding workers in theface of weak demand, but soon strong firms looking to boost shareholder value alsoadopted the policy. Downsizing can be used as a strategic option that management canexercise in order to boost equity value. Downsizing sometimes called “rightsizing” refersto the planned elimination of positions, operations or jobs. This programme is often usedto implement retrenchment strategies. A good retrenchment strategy can thus beimplemented well in terms of re-organizing but poorly in terms of staffing.Voluntary Redundancy & ways of downsizingVoluntary Redundancy (VR)
    • Voluntary redundancy (VR) has become widely used as a method of dealing withredundant employees, but what are the advantages of adopting it and under whatconditions it will be effective? Does it have any disadvantages of adopting, and what canbe done to increase the supply of volunteers if there is a shortfall? The starting point is aninvestigation into what is meant by voluntary redundancy: neither law nor practice hasdefined the term precisely (1).There was a time when voluntary retirement used to be the last resort for organizationsfacing compelling business conditions. But to-day voluntary retirement schemes (VRS)have become an in-thing for surviving in the fiercely competitive market. The ultimateobjective is to reduce the total manpower for savings in wage cost to bring down the costof product or services. If this is the ultimate objective, one has to examine how much thewage cost constitutes as a percentage of the total cost and how much the other factors ofproduction contribute to the total cost of production. Except for highly labour intensivemanufacturing or process units, major contributors to the cost of production are basic rawmaterials and consumables, power and fuel, maintenance and spares, the depreciationcharges for plant and machinery and of course the cost of servicing the loans from thebanks or servicing the debentures.In many large size organizations, there is no more lifetime employment. Companies havebeen downsizing through the process of a compensation package based on VoluntaryRetirement Schemes (VRS). VRS is viewed as one of the methods for the turnaround ofthe company when business cycle is on a declining curve. The symptoms of such declineare seen in gradual decline in profits, reduction of market shares, loss of monopoly, fastemergence of new technology, etc. When these symptoms are round the corner,management must initiate action through strategic planning.This chapter focuses mainly on the four major ways of direct downsizingof workforce and also covers practices adopted by different corporate housesin India and abroad. The major ways of downsizing (Sen & Puri, 2) are as follows: - • Lay-off • Retrenchment • Closure • Voluntary RetirementLay-offIt is a temporary measure to reduce workforce in case the organisation faces problemslike shortage of fuel or power, accumulation of raw material and finished stock due torecession, shortage of working capital, breakdown of machinery or natural calamity. Thereasons under which employers can lay-off workers are very specific and limited in
    • number. According to Section 25-m of the Industrial Disputes Act, 1947 unless the lay-off is due to shortage of Power or natural calamity no worker can be laid off without theprior permission of the Appropriate Government, in case the number of workers exceeds100. A well-known manufacturer of textiles, Mafatlal Industries had declared a 35 days lay-off in its spinning, weaving and grey-folding departments which would have affected1,200 workers. It was aimed at cutting production due to recession in the textile industryand cutting costs. The lay-off was declared illegal by the Labour Department. Another Company,Hindustan Motors, one of the key players in Automobiles, in the recent past entered intoa legal course against the order of refusal of permission of lay-off. The issue is stillpending before Calcutta High Court. Ashok Leyland, a leading manufacturer ofautomobiles, decided to shut down its Ennore plant for 12 days in June, 1998 when stockpiled up due to recession, in the commercial vehicle sector. It was done with thecooperation and approval of the union. That period was not treated as lay-off technicallyand workers were entitled to full wages and allowances except incentives.According to a study of the top 100 Fortune –500 companies by Kenneth, Paul andThomas (1994) to track their lay-off announcement Motorola and Texas Instruments,both US-based companies adopted different strategies to cope up with recession. TexasInstrument terminated the jobs of several thousand employees and had to rehire, retrain,and motivate the employees when things improved. Motorola adopted a differentstrategy. The employees were required to work one day less in every two weeks duringthe recession period. The Philosophy behind this was ‘We are in the boat together.’Retrenchment Under the Industrial Dispute Act, 1947, an organization can retrench employees for anyreason other than termination of employment due to disciplinary action. It does not meanretrenching all the employees due to closure. The employer can prune the workforceusing this method and pay them the retrenchment compensation as stipulated in the Act.But the employer has to retrench the junior- most employees even if they are competentbased on the LIF (Last in First out) principle. Very recently the Union Cabinet hasapproved the retrenchment of 218 workers in Hindustan Vegetable Oils Corporation apublic unit based in Delhi. The unit was ordered to shut down by the High Court a fewyears back and it had been incurring a monthly expenditure of Rs.25 lakhs on idle wages(Human capital Oct. 199). In February 1994 113-crore Modern Food Industries wasallowed to close down its Ujjain factory and retrenched 126 employees. Such cases ofGovernment approvals in case of large companies are few and far between. Retrenchment is not just a simple means to downsize workforce. It involves a tricky andcomplex process for identifying the non-performers, who are required to be separatedfrom the organization permanently. At HCL there are no soft-options. With a single –minded focus on performance the company firmly believes that what is good for it is the
    • best for its people. Managers are ruthlessly performance-oriented. Every employee isranked on the merit list. HCL managed the downsizing by identifying three clusters ofpeople whom they call Yesterday’s, Today’s and Tomorrow’s people [YTT].Yesterday’s people are those who are characterised by inflexible attitudes and decliningperformance. Therefore they are the first to go. Today’s people are those who havemaintained consistent performance and are recommended for further training to tap theirpotential. Tomorrow’s people are the super-achievers at whom the organization throwsstretch targets and plum rewards. This technique is applied through the monthlyperformance reviews for each business unit.ClosureAn employer can close down the whole or part of a unit if the circumstances that lead toclosure are beyond the control of the employer. The Government has to be notified atleast 90 days before the intended closure, citing reasons there for. Section 2 (cc) of theIndustrial Disputes (Amendment) Act, 1982 defines “closure” to mean “ the permanentclosing down of a place of employment or part thereof ”. Section 25 (FFF) imposes aliability on the employer who closes down his business, to give one month’s and paycompensation equal to days’ average pay for every completed year of continuous serviceor any part thereof in excess of six months. In case of closure on account of unavoidablecircumstances beyond the control of employer, the maximum compensation payable to aworkman is his three months salary (Srivastava, 3).The Ghatkapor (Maharashtra) unit of BOC has been given permission by the MaharashtraGovernment shut down on grounds of continuing losses and poor productivity. Thelosses were to the tune of Rs. 8 crores in the past seven years (Human Capital, March,1999). In1994, The Bhandup plant of Hindustan Ciba-Geigy in Maharashtra was closeddown and the employees were offered VRS.Levi Strauss & Co., the renowned manufacturer of Jeans has planned to shut downaround 11 of the North American facilities and cut 5900 Jobs by shifting most of itsproduction activities overseas to reduce labour costs (Human Capital March, 1999)(4).One of the most important drawbacks of these methods of downsizing is that they cannotbe used at the discretion of the employer in case of large organisations (where the numberof employees exceed100). Approval of the Government before lay-off, retrenchment andclosure is compulsory. In a country like India, where unemployment is a big problem,the Government is very reluctant to give permission for cutting jobs even if the reasonsare genuine. Very often, long battles are fought in the court of law where the balance maytilt in favour of any one of the parties. Trade Unions also offer stiff resistance. J.K.Synthetics had closed down its fibre plant in Kota. A case was filed against the companyand the legal battle continued for 14 years. The Supreme Court eventually declared theclosure illegal and ordered the reinstatement of 1,100 workers with full compensation.Human Resource Planning vs. VRS
    • Perhaps the most important but generally most neglected aspect of VRS is detailedhuman resource planning. The basic assumption for introducing VRS is that a number ofemployees shall leave the company and therefore, for maintaining an efficient andoptimum level of production, the retained employees are to be effectively utilized. Theissue is not as simple as it appears to be. The first and immediate reaction of theemployees is about their traditional concept of work, and the existing work cultureperpetuated for long years to which the workers have been accustomed with. Forexample, in most industries, the skilled workmen or technicians do not attend a job unlessthey are given a helper to assist them. Human resource planning must take into accountas to how such issues are dealt with. A proper work-study would reveal that most of thetimes while technicians attend to their jobs, the helpers stand idle and their presence isnot required technically. But nevertheless being assisted by helpers satisfy theirunconscious esteem needs, based on hierarchical concept in the industry.The other aspect of human resource planning is to identify old and ineffective personswho are perpetually sick, alcohol or drug addicts and habitual absentees and thus haveleast or very low productivity. Along with this, lazy but, self-proclaimed group leadersare also to be identified. For each of these cadres and categories of organisationalmembers different approaches are to be thought of and in this process resorting toadministrative actions through the specific provisions of the Standing Order may well beconsidered, before initiating discussions on VRS.The most vital aspect of human resource planning is to prepare a skill inventory. Personswith specific skill and expertise have to be retained. An important aspect is polyvalent ormulti- disciplinary skill development programme, which should be organized in aplanned manner before VRS is introduced. Job rotation and redeployment areunavoidable and for this, time-bound training programmes are extremely necessary.Investments in such programmes give good returns. With the advent of the e-commerceand fast development of technology, organizations are bound to have flatter organisationstructure by reducing the number of layers for their survival. A well worked outmanpower plan shall be an important pre-requisite to convince the collectives that afterthe VRS is implemented, the retained workers shall not be unjustifiably burdened withexcessive workload. Management must deliberately avoid engaging some chosen retired,employed on contractual basis for availing their skill and expertise. If such practice isfollowed, possibilities of discrimination and favouritism will not only disrupt thecredibility of the management but also will adversely affect the morale of the existingemployees.Benchmarking VRS practices and Compensation ManagementHaving identified the reasons for the present downtrend of the organization and alsohaving decided the probable actions required for rectification, the company must compareits vital data for all the factors with the best company in the same or similar trade. Suchbenchmarking helps in understanding the level of efficiency at which the company ispresently working. For the purpose of preparing VRS, data on inter-firm comparison of
    • wage bill including welfare expenses, particularly with reference to the nearestcompetitor could be an eye an eye opener for management and collectives. This singledatum may decisively go in favour of introducing VRS. In addition to this another datummay be on value added per employee and value added per rupee of wages.The compensation package normally determined on existing salary, past service, futureservice, types of compensation packages being offered in the industry / region and alsothe financial situation of the existing company. By and large, the pay back period of thecompensation package in companies is less than three years.Voluntary retirement is the golden route to retirement and has become one of the morefavoured ways of dealing with the redundant workforce in an organization. The mosthuman technique for downsizing the workforce in an organization is the VRS. Thegolden handshake, as it is often called, is virtually corporate India’s only option today forshedding manpower. The method offers employees a lucrative severance package: theycannot refuse particularly since law makes it tax-free so that they retire of their ownvolition. Voluntary separations cause less pain and agony. It gives people choice anddiscretion rather than making them the victims of management decisions. VRS isconsidered to be a softer option compared to retrenchment because of legal difficulties,trade union opposition, and obligations under the existing collective agreements andconsiderations of good industrial relations.Thus, Voluntary Retirement Scheme (VRS) has become one of the ways of dealing withredundant human resources in an organization. As the name implies, opportunity is givento employees to retire voluntarily. As an inducement, higher compensation than is paidunder retrenchment /normal retirement is paid along with, in most cases, some allowancefor settlement at native place or any place of the person’s choice if suchsettlement/resettlement occurs within a stipulated time. If this is not adequate, somefringe benefits like medical reimbursement/insurance are offered even after voluntaryretirement. The VRS is also commonly referred to as Voluntary separation Scheme(VSP) or the Golden Handshake Programme (GHP), Venkat Ratnam (5).In this context, INDAL’S Belgaum Smelter case is a unique success story of dealing with472 redundant workers when 187 operating pots at Belgaum were de-energised and wentoff production during 1992. This was the sharp escalation in power costs imposed byKSEB. Power is an important input in aluminum smelting and is considered almost a rawmaterial for the production of the metal world over. In the year the smelter was losing Rs.6 lakhs. Reflecting its old value system and respect for its people, INDAL handled thesituation in a very human and compassionate manner. It is worthwhile to mention that theVRS that the company designed and implemented was unique. Before designing andintroducing scheme the company did a lot of preparatory work. A team of senior officerswas sent to Bombay to visit some of the well-known companies, namely, PremiereAutomobiles, Ciba-Geigy, Hindustan Lever, etc. with a view to collect their VR schemes.The team also studied the strengths and weaknesses, success and failures of the differentVR schemes, before developing, designing and implementing their own scheme. Thedecision to implement the VRS though painful was carried out as the last available
    • alternative to reduce surplus manpower. What was unique about VRS (policy) adopted bythe company was that over the benefits payable as per public sector enterprises, thecompany built in additional incentives based on age-like medical insurance, etc. Thescheme was designed to enable the retired employees to identify with the company. Itprovided adequate medical and insurance coverage for the employees in the post-retirement years. The company also granted education scholarships to the children ofretired employees. Entrepreneurial Development Programmes were developed foremployees accepting VRS. This covered counselling, arranging loans, helping them withproject profiles, tax and investment planning, organising relevant training, etc.(for detailsplease see the enclosed case on Belgaum Smelter(6).Care for the SurvivorsThe survivors experience an emotional shock that prevents them from suddenly changingdirection. They freeze like a “deer in the head lights”. The familiar pattern is broken andthe momentum that comes from routine and repetition will take time to recover. Notknowing what to do people will wait and see what happens. They are waiting forleadership, some one to tell them what to do. People fell at seeing their friends leaving ortheir positions eliminated. It feels very much like a death in the family and needs thecompassion and time for mourning we expect whenever a loved one is lost. A goodmanager will have the compassion for the human need to cope with the shock and fearthat people feel, combined with a sense of optimism direction and mission will help themthrough the often painful transition from what was to what is to be (Harrison, 7).Thus, planned separation is not an end itself. It is a means to an end and the end resultcontemplated is to rejuvenate the company is in the highly competitive market place. It istherefore essential to plan for working out schemes that the retained organisationalmembers are not demoralised. A fall out of VRS is that the retained employees are ascared lot, always afraid and apprehensive that anyone or some of them may be asked toretire at any time. Though in reality it is not possible to assure all the retained employeesabout their retention for all time in future, management should demonstrate by its actionthat retained employees are considered and treated as valued members of theorganisation. It is important to maintain the morale of the retained staff. It is therefore,necessary to maintain close communication with them and dispel rumours that aregenerally rampant in such condition (De, 8).Counselling ServicesFrom the very beginning initiation of VRS, it is to be realised that for making the schemesuccessful, efforts to be made to build a good deal of counselling services. Counsellingshould be used as a process to communicate effectively with the orgasnisational membersso that they realise that the VRS is last resort for the revival and survival of theorganisation.. A good couselling session must include practical advice about how to use
    • or invest the sum received as compensation under VRS. The retained employees shallalso need advice not only on investment but also on income tax implications.It is evident that if a decision is taken for downsizing the organisation, a good amount ofplanning and preparation is essential. All the issues pertaining to it must be consideredconcurrently in tandem. Transparency in the management actions and fairness in itsdealings are extremely necessary.Conditions Favoring the Effective Use of VRThe fact that management to use or willing to use VRS is a prerequisite for introductionof the technique, but certain conditions encourage or perhaps are necessary for itsdeployment (Paul Lewis, 1993) (9). According to him the facilitating factors comprise:• Availability of sufficient finance• Favourable workforce characteristics• Absence of union opposition of control; and• Availability of work for non-volunteersIt seems clear that more money is needed if an individual is to be persuaded rather thanforced to leave. Age profiles, length of experience, employment pattern and earningslevels may be relevant to the effective use of VR. An age profile of employees with ahigh proportion of people in the early retirement age group means that what is typicallythe best financial deal is available to a relatively large proportion of workforce. On theother hand, a relatively old workforce, with substantial length of service in individualcases will increase the size of retirement packages because the statutory formula is basedon partly upon age and length of service.The question of union attitude towards VR and the extant which a union can prevent itsmembers volunteering it thinks it is necessary to communicate directly to employees inthe hope of bringing forth volunteers. If the union has little control over its members, thismay prove successful. The initiative for VR may come from the union rather than theemployer. VR assumes that work is available for those who want to stay. VR should beapplicable to any company for slimming exercise rather than closure.References1. Paul Lewis: HRM: The Successful Management of Redundancy, Chapter 2, Blackwell Oxford UK, 1993, pages 17-382. Aloke K Sen & Roma Puri: Downsizing of Business – Impact on Organisation Structure and Work force, IR Jr. of NIPM, Calcutta Chapter, April 1999, pages 6-11.3. S.C. Srivastava: Industrial Relations & Labour Laws; 4th ed., Vikas Publishing House Pvt. Ltd., New Delhi, 2000, p. 483-572.
    • 4. Human Capital, March 1999, New Delhi5. C S Venkat Ratnam: Managing People: Strategies for Success, Global Business press, New Delhi, 1992, pages 186-1986. Aloke K Sen: A Case Study on Belgaum Smelter of Indian Aluminum Company Limited, MDI, Gurgaon, 1994,Pages 1-29 (Unpublished).7. Lee Hecht Harrison: Beyond Downsizing: Staffing and Workforce for the Millennium, www.ihh.com/us/rsrchinfo/studies/byndownsizing.html , 2000, pages 1-38. S J De: Home Work saves the Day, published in Human Capital, New Delhi,November 2001, pages 34-37.