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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?
    • A downsizing strategy reduces the scale (size) and scope of a business to improve its financial performance.
    • A reduction of the workforce is one of only several possible ways of improving profitability or reducing costs.
  • 4. Downsizing
    • Why do Firms Downsize?
    • Reduce costs.
    • Reduce layers of management to increase decision making speed and get closer to the customer.
    • Generate positive reactions from shareholders in order to improve valuation of stock price.
    • Increase productivity.
  • 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
    • Downsizing - August 2007.
    • 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.
    • 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.
    • Early Separation Scheme (ESS), the humaneness and effectiveness with which the company cut its numbers
  • 7. TATA Steel
    • 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.
    • “The number of employees has been reduced from 77,448 in 1994 to 52,167 in 2000 and to 39,658 in 2005”.
  • 8. Alternatives to Downsizing
    • Employment Changes in Pay/Benefits Training
    • Policies Job Design Policies
    • Attrition Transfers Pay freeze Retraining
    • Hiring freeze Relocation Cut overtime
    • Cut interns Demotions Use vacation &
    • Cut temps leave days
    • Voluntary Pay cuts
    • time off Profit sharing
    • Reduced work or variable pay
    • hours
  • 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.
    • Downsizing forces re-thinking of Employment Strategy .
    • Lifelong employment policies not credible after a downsizing.
    • Example: IBM abandoned lifelong policy after
    • several layoffs in early 1990s.
  • 10. Thank You !