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
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.
Why do Firms Downsize?
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.
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
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
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”.
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
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.