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Downsizing
Downsizing
Downsizing
Downsizing
Downsizing
Downsizing
Downsizing
Downsizing
Downsizing
Downsizing
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Downsizing

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  • 1. Downsizing
  • 2. Contents 1. What is Downsizing? 4. Downsizing in TATA Steel 3. Downsizing Strategies 5. Alternatives to Downsizing 6. Downsizing Effects 2. Why do Companies Downsize
  • 3. What is Downsizing? <ul><li>A downsizing strategy reduces the scale (size) and scope of a business to improve its financial performance. </li></ul><ul><li>A reduction of the workforce is one of only several possible ways of improving profitability or reducing costs. </li></ul>
  • 4. Downsizing <ul><li>Why do Firms Downsize? </li></ul><ul><li>Reduce costs. </li></ul><ul><li>Reduce layers of management to increase decision making speed and get closer to the customer. </li></ul><ul><li>Generate positive reactions from shareholders in order to improve valuation of stock price. </li></ul><ul><li>Increase productivity. </li></ul>
  • 5. Downsizing Strategies 1 Workforce Reduction -early retirement -transfers -outplacement -buy-out packages -attrition -lay-offs 2 Organizational Redesign -eliminate functions -cut hierarchical levels -drop divisions or products -consolidate or merge units -reduce work hours -lengthen shifts
  • 6. TATA Steel <ul><li>Downsizing - August 2007. </li></ul><ul><li>The fifth-largest steel manufacturer in the world, has managed to halve its staff strength in the last 13 years without giving much scope for tears. </li></ul><ul><li>Director of TATA Sons, said when the company decided to reduce the number of employees, it evolved a VRS plan taking care not to cause any heartburn. </li></ul><ul><li>Early Separation Scheme (ESS), the humaneness and effectiveness with which the company cut its numbers </li></ul>
  • 7. TATA Steel <ul><li>They offered them 1.2 times of their monthly salary for the rest of their service in the form of cheques. The scheme also comprises the insurance rider — in case of Employees death, their family would continue to get the benefit,” he said. </li></ul><ul><li>“The number of employees has been reduced from 77,448 in 1994 to 52,167 in 2000 and to 39,658 in 2005”. </li></ul>
  • 8. Alternatives to Downsizing <ul><li>Employment Changes in Pay/Benefits Training </li></ul><ul><li>Policies Job Design Policies </li></ul><ul><li>Attrition Transfers Pay freeze Retraining </li></ul><ul><li>Hiring freeze Relocation Cut overtime </li></ul><ul><li>Cut interns Demotions Use vacation & </li></ul><ul><li>Cut temps leave days </li></ul><ul><li>Voluntary Pay cuts </li></ul><ul><li>time off Profit sharing </li></ul><ul><li>Reduced work or variable pay </li></ul><ul><li>hours </li></ul>
  • 9. Downsizing Effects: Overall Mixed effects on firm performance: some short-term costs savings, but long-term profitability & valuation not strongly affected. Firm’s reputation as a good employer suffers. Example: Apple Computer’s reputation as good employer declined after several layoffs in 1990s. <ul><li>Downsizing forces re-thinking of Employment Strategy . </li></ul><ul><li>Lifelong employment policies not credible after a downsizing. </li></ul><ul><li>Example: IBM abandoned lifelong policy after </li></ul><ul><li>several layoffs in early 1990s. </li></ul>
  • 10. Thank You !

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