Blood Sweat And downsizing

DR P.K. Sinha froze in his chair. Surely, this was a nightmare? After 12 years building the drugs formulation business from scratch, he was being told by his boss that his services were no longer needed. He could stay in the company-leased house for another six months, his car loan would be written off...the rest he didn't hear. He thought of the day he strode off to office when his wife wanted him to attend a parent-teacher meeting, he was thinking of his daughter who he wanted to marry off in the next two years.

Sinha is just one of the hundreds of thousands of people who have been or are soon going to figure in the hitlist of companies trying to tune in to the global economy. A wave of corporate restructuring and reengineering is reshaping India Inc and, in the process, thousands of people are losing their jobs. At old multinationals like Siemens, Philips or ITC. At family-run companies like Ballarpur Industries and Ranbaxy. In core sectors like cement, tyres, and pharmaceuticals and even in the consumer goods sector.

The ferocity of retrenchment may not be the same as that of US corporations that routinely shed employees like autumn leaves. But for the first time in Indian corporate history, the axe is falling not just on blue-collar workers but on managerial staff too, right up to the level of vice-presidents and CEOs. Because global work culture and performance standards are seeping into the opened-up economy. Because the times are hard. Because they are changing. Because technology makes it possible for one person to handle the job of 10. Because the marketplace today demands a flatter, faster, flexible organisation. Because the economy is on a downturn.

The days of guaranteed employment are over. "I wonder how my father worked for one company for 37 years. I am only 24 years old and have lost two jobs already for no fault of mine," says an in-flight attendant at the grounded ModiLuft. "First, Citilink Airlines closed down. Now ModiLuft's fate is hanging in balance. I haven't resigned. I haven't been fired. The only reality today is that I have neither a job nor bargaining strength in the tight job market."

 "The days of job security are over across the world," says Vikrant Raina of the Boston Consulting Group. "Even in Japan that prides itself for lifetime employment, consultants and reengineering seminars are in demand. In India, the downsizing fever is just about beginning to grip companies." The virus is spreading fast. Says Debashis Mitra, group vice-president at Ballarpur Industries Ltd (Bilt): "As the time-buffer between the developed and Third World economies gets eliminated, what happened in America in the '80s by way of delayering, staff rationalisation, layoffs and reengineer-ing is happening here in the '90s."

Yes, the management theory is impeccable, the numbers prove the necessity of downsizing. But Mitra admits: "It's the toughest thing to do. Asking people to go home. Telling them that their services are no longer required. After all, they are flesh and blood people and not pieces of meat." And the other side. Says G.S. Dhumi, who was given marching orders after 27 years of working with Blue Star: "They said my performance in the last five years was not up to the mark. This was the first time I ever heard of it."

At Siemens, the Rs 1,186-crore Indian affiliate of the German multinational, a thousand employees have been told that they would soon not be required to report for work anymore. This is only the beginning. The company is charting out a systematic downsizing plan that will progressively take a toll on the 8,200 people that it employs in eight factories all over the country. Early retirement schemes are being given the final touches. The number of plants in Mumbai is being reduced from four to two, hundreds of jobs will vanish.

THE company is going through one of the worst patches in its 75-year history. It reported a loss of Rs 24 crore in the first half of 1996-97. Its commodity and project engineering business has been hit by the cost-push factor and recessionary trend in the economy. The demand in the areas of telecom and power generation, into which the company hastily plunged, has not met expectations. Result: cash crunch. Remedy: economy drive. Siemens is pruning its fresh investment plans by 50 per cent and has chalked out a comprehensive revamp plan. Manpower reduction, naturally, is an integral part of it. Changing conditions warrant that the organisation be trimmed, said executive director Heinz-Joachim Neubuerger.

The story at the Rs 1,100-core Bilt is not too different. Group vice-president Mitraand his team are meeting dozens of employees personally every day; explaining to them why their employer cannot afford them any more; counselling them on alternate employment avenues; helping them update their curriculum vitae; putting them in touch with headhunters. Altogether, these employees are 1,500 in number, more than 10 per cent of the workforce. Earlier, the company cut its managerial strength by 15 per cent and its workmen by 10 per cent through a voluntary retirement scheme (VRS).

Bilt is feeling the pain of its size. Its first-half profits are down. Its core business of paper is under strain from falling international prices and reduced import tariffs. To withstand competition, Bilt needs to modernise its paper plants at the cost of Rs 500 crore. These funds have not been forthcoming—given the credit squeeze, the reluctance of institutions to lend in the face of managerial squabbles at the company and a slowdown in the order book position. The group's other businesses are not doing too well either. "The changed environment demands greater responsiveness to the marketplace, faster decision-making and that each and every process, product and person add value to the bottomline. If it doesn't, that process or person must be eliminated," says Mitra.

At Apollo Tyres' corporate office in Delhi, assistant vice-president H.S. Shekhawat is poring over a thick docket. It contains a detailed downsizing plan. "We have done a scientific evaluation and found that the ratio of white-collar to blue-collar workers in the company is 1:4. The international norm is 1:17. There are some 1,529 white-collar workers who don't produce a single tyre. Who can afford this luxury in these hard times? We are trying to correct the teeth-to-tail ratio that's gone completely askew," he says.

Shekhawat also has before him the blueprint of the organisation that Apollo will be tomorrow. The number of departments will be reduced from 23 to four, and the designations in various departments will be reduced from 14 to five. "We aim to break vertical and horizontal barriers, giving Apollo a leaner and flatter structure that is more in tune with the competitive environment," says Shekhawat. His boss Onkar S. Kanwar, vice-chairman and managing director, sees manpower rationalisation as a critical factor in cutting administration expenses and improving productivity. In the first half of 1996-97, net profit declined by 6.2 per cent compared to the corresponding period in the previous year. ITC's top brass are working out the modalities of reducing overheads and going lean at the top. ITC's wage bill is estimated at Rs 307 crore, 6 per cent of its total sales turnover of Rs 5,115.35 crore. Funds are tight. It has decided to focus on the core areas of tobacco, paper and hotels and is closing down other businesses in a phased manner. As a result, several managers and senior managers are being rendered redundant. The company is working on a separation package to make their exit less painful. It is also identifying middle and senior-level managers for offering a VRS.

'Outplacements' is the new service more and more manpower consultants are offering: your client here is a company which wants to get rid of some managers, so you help them get jobs. "For the first time, Indian companies are using downsizing as a business tool and linking productivity to profitability," says Ravi Virmani of placement consultant Noble & Hewitt. Says P.N. Mohan, managing director, Sterling Holiday Resorts India, which too has pruned its staff strength by nearly 30 per cent, closing offices in smaller towns and merging various divisions: "It's made the company more cost-effective and professional."

The worst-hit sector may be financial services, where downsizing is happening as a correction of the mindless euphoria of the 1993-95 boom. Companies sprouted like mushrooms, managers joined up randomly from various industries, drawing salaries disproportionate to their horsepower. Pay packets thickened by 100 to 400 per cent. "With the markets showing no signs of looking up, the overheads are pinching today," says T. Sengupta, managing director, Consindia HR Services. "There's a reverse trend now of people wanting to go back to the industries. And they are willing to take a 15 to 20 per cent remuneration cut," says Nirmit Parekh, president, 3P Executive Search. Trouble is, there are few takers. The doors in most industries are, in fact, only showing the exit sign. The economy is beeping weak signals. Investments have slowed in core areas like infrastructure, project engineering and housing—with a cascading effect on industries like steel, cement, automobiles. Consider cement: inventories are piling up. By December, companies had unsold cement stocks of about 1 million tonnes and over 4 million tonnes of clinker stocks. This is 40 per cent higher than in August. Small units are downing shutters, rendering hundreds jobless. Even the bottomlines of big players like India Cement are under pressure; the company is downscaling its workforce by 1,031 workers.

 The automobile sector too is plagued by problems of inventory pileup, sluggish demand and overcapacity. Most companies are freezing appointments and looking at various modalities of trimming their staff. Bajaj Auto wants to reduce its staff strength from 25,000 to 15,000 by the year 2000. Mahindra & Mahindra is said to be working with two foreign consultants on a massive reengineering project. In the tyre industry, besides lower offtake, companies are also struggling with stiff duties and overcapacity. Besides Apollo Tyres, Dunlop may be planning to shed 400 employees, and Modi Continental 1,200.

Opening up of the consumer durable, home appliance, passenger car and soft goods segments has seen global players come in. Result: oversupply in the face of sluggish demand. Inventories for luxury cars, washing machines and colour TVs are piling up. Cost rationalisations in factories and offices are matching discounts and promotional schemes in the marketplace. "In such an environment, you have to look at all opportunities for cost-efficacies and manpower is definitely an important part of fixed costs," says Ashok Khanna, vice-president, HRD, at Whirlpool. Whirlpool is selling its compressor manufacturing facility to Tecumseh. This will leave the company with an employee strength of 3,400, down from 5,000. Blue Star has asked 5 per cent of its management personnel to put in their papers. "Companies can't carry the burden of poor performers any more. Not if they want to be world-class," says G.S. Anand, executive director.

STIFF business environment, yes, but this spate of pink slips is also an exorcism of the four-decade-long License Raj, especially for old Indian business groups like Thapars, Birlas, Modis, Singhanias, or multinationals like ITC. For years, these groups diversified into any area where a license became available. So the Thapars were into paper, edible oils, colour picture tubes, garments, aquaculture, glass and cement. The Singhanias were into textiles, pharmaceuticals, tyres and nylon cord. ITC flexed its muscle not just in tobacco but hotels, leather, edible oils and exports. When the economy opened up, the freedom to enter any sector sent these companies stampeding into even more unrelated diversifications. A Garware planned to enter power, a Mahindra & Mahindra wanted a piece of the telecom pie, a Videocon decided to explore for oil and build roads.

Few realised that the environment had changed, that market forces were at work and that they obey no rules. Then came the liquidity crunch. The stockmarket stagnated, and the competitive environment, fuelled by the entry of global players and the downslide in the economy, put hastily-conceived projects in the doldrums. Chastened, many companies are going back to their areas of core competencies. ITC will close down or sell businesses like edible oil. And Bilt will stick to paper and process-engineering businesses. Sundaram Fasteners has shut down its software arm. Restructuring leads to redundancy.

And then there's the merger and acquisition spurt, especially in the pharmaceutical sector. Hindustan CibaGeigy is trimming its labour force at its Goa and Mumbai plants by 13 per cent to avoid duplication of personnel after Sandoz India is merged with it. In the wake of its merger with Wyeth Laboratories and John Wyeth (India), Cynamid has just shed 90 employees. The recent takeover of Crosland by Ranbaxy has given the latter a sales staff of 1,700 people. It is unlikely to carry the burden. Pir-amal's takeover of Rosch, implemented recently, has rendered over a 100 people, about 30 of them managers, jobless. Rhone-Poulenc is planning to downsize its 450-strong workforce.

Support services like advertising are caught in the fallout. "For the first time, you're getting calls from the seniormost managerial levels wanting a changeover. But there are no slots. Slots in most agencies are not being filled up once they are vacated," says a manager at Rediffusion DY&R. TV channels too. Nearly 120 Home TV staffers in Delhi and Mumbai have been asked to go home because of "overstaffing" and "financial constraints". At TV18, contracts are not being renewed. In aviation, more than 6,000 jobs were created in the last three years; East West alone hired 3,500 people. With most of them—East West, Raj Air, Citilink, Damania, ModiLuft—shutting shop, merging or in suspended animation, jobs have evaporated by at least 40 per cent.

Finally, global management practices are being adopted. "The skillsets required today are totally different. Instead of a sales manager or a process manager, the industry today asks for a business manager," says Sonal Agarwal, director, ABC Search. Besides, companies are going in for outsourcing and contractual assignments. "On a macro level, this translates into downsizing to the extent that the specialised agency is able to perform the same task with less manpower and costs and more efficiently," says Khanna.

The new dictum is "flatter and faster." "The average reporting levels in most progressive companies is coming down from 12-15 to about five or six to speed up the decision-making process and avoid duplication," says Virmani. SBI has reduced the number of deputy managing directors from 21 to just four. "Bloated bureaucracies have outlived their utility. Today this flab must be got rid off before it weighs you down," says Mitra of Bilt. 

Multi-skilling and functional integration are new trends. Companies are urging employees to do more than one job and take on more than one responsibility. Thus, a marketing manager now does not just do marketing strategy but also brand promotion, sales supervision and market research. At Dabur, medical representatives double up as market research staff. 

Surprisingly, the salary spiral has also contributed. In the last three years, Bilt has jacked up salaries at the lowest levels by 50 to 60 per cent. For best performers, the package is heavier by 200-250 per cent. When the company pays such monies, it also looks to shed non-performers. "If I give a 20 per cent hike in wages, what will be my return in terms of productivity, is the question all companies ask," says Virmani. In the last one month, CEOs of two prominent consumer durable companies, Voltas and Electrolux, have quit.

There may of course be a happy ending. For example, Dr P.K. Sinha. Sacked after building the drugs formulation business for 12 years, he is now the managing director of a former rival. The bitterness, of course, will never go. And also, the realisation that thousands of Indian managers are reaching, that the downside of economic reforms is downsizing. Welcome to the real world of competition.