WHILE Indian companies are following US companies on the road to layoffs, surprisingly, in the US itself, some of the most prominent down-sizers like Xerox, AT&T, Boeing, IBM, KMart and Chase Manhattan are hiring again.
There is a reverse trend among US companies, who are upsizing
WHILE Indian companies are following US companies on the road to layoffs, surprisingly, in the US itself, some of the most prominent down-sizers like Xerox, AT&T, Boeing, IBM, KMart and Chase Manhattan are hiring again.
A survey conducted by the American Management Association last year showed that only 45 per cent of downsized companies reported a hike in profits (which was why they sacked people in the first place). The survey also found that downsizing led to a slump in morale which had a strong bearing on productivity and profits. So many companies are planning to upsize and go for growth instead of cost cutting. Even Wall Street is now becoming sceptical. For a while it did seem to respond positively to layoffs but a recent Mercer Management Consulting study of 1,000 of the largest US companies found that the compound annual growth rate of market capitalisation for downsizers was about 11 per cent from 1988 to 1994. For the companies that concentrated instead on revenue growth, it was 15 per cent.
Maybe Indian companies take to downsizing as a panic reaction or just to copy the US fad. Here, downsizing could cause significant social dislocation, because we are not creating enough jobs to absorb retrenched employees. In the past five years, the economy has grown by over 6 per cent annually, but employment has grown by a measly 0.4 per cent.
Besides, there is no social security—no dole system that protects your basic livelihood. "Rehabilitation and redeployment are better than retrenchment. It even makes financial sense if a manufacturing company can maintain a growth rate to 15 to 20 per cent," says Vikrant Raina of Boston Consulting Group. Is grabbing for growth then a better idea than pruning for profits?