Change of business model – Issues in downsizing

The challenge organizational members’ face is not unique. Large companies, Small businesses, Entrepreneurial start ups, Universities, State and City governments, hospitals and even the military are being forced to significantly change the way they do things. Although change has always been a part of manager’s job, it has become more in recent years. In this article we discuss the reasons for this increase in change and the ways managers can deal with the stress that exists in organizations, stimulate innovation and increase their organizations adaptability.

The Indian subsidiary of multinational corporation (MNC) engaged in the manufacture of electrical and electronic appliances have their manufacturing facilities in the states of West Bengal and Maharashtra. At some point, the parent company decided to change its business model, as per which each country of its operations would have only one manufacturing facility. Hence, in spite of the company having invested considerable sum in building up the West Bengal factory as World class manufacturing unit with highly skilled trained staff it was decided to close down this unit and shift all operations to Maharashtra. Accordingly a downsizing exercise was initiated in the West Bengal unit to affect this closure. A voluntary retirement scheme (VRS) was introduced prior to the actual closure, to reduce the manpower, while the top management at the Mumbai head quarters negotiated with prospective buyers for sale of the factory in an as is where is basis condition.

During the course of the downsizing exercise, a number of issues – both strategic and psychological facilitated as well as hindered the implementation of the process. At a strategic level, certain approaches from the organization’s perspective served to facilitate the process of implementation. The humane approach of the company and the care and concern for employees were reflected through various supportive management actions. For example, the implementers organized appropriate counseling sessions and re-training programs to enable the downsized employees to make a fresh start in their careers. This served to reinforce the credibility of the management in the eyes of the employees, despite the adverse nature of the downsizing decision. Efforts are also initiated to try and fit employees into other sister units of the company. For those with mobility problems, the organizations made special efforts to find suitable positions in units situated in and around West Bengal. Furthermore, in order to help employees make a smooth relocation to Maharashtra, the personnel department of the company provided support in terms of arranging for accommodation, schools and other facilities for the families transferred to Maharasthra. Finally, all the managers, entrusted with the job of implementing this exercise, enjoyed excellent rapport and interpersonal relations with the employees. Hence the top management’s decision to entrust them with responsibility of implementation added to the top management’s credibility in the employees eyes.

However, there were a number of hindrances that contributes to some negative perception among the employees. The management’s actions in making huge financial investments in the West Bengal factory, recruiting new employees, and subsequently deciding barely two years later to close down operations altogether was seen as confusing and contradictory; hence, the rationale given for the downsizing decision was not considered convincing enough. It was felt that in deciding on West Bengal and not Maharashtra, the top management had been influenced more by the industrial relation’s climate in the state rather than the performance of the West Bengal factory. There was also a lack of clarity in communication by the top management to the employees about the decision to downsize.

By and large, while the perceived arbitrariness of the decision to downsize did result in a loss of faith on the top management, it was compensated to some extent by the implementation process that was considered to be just and fair. On the other hand, this exercise proved to be an extremely stressful and traumatic experience for the implementers, who had to contend with personal feelings of guilt and helplessness while helping other employees to cope with their insecurities and traumas.