SHRM Term 2 Case Analysis

The Restructuring of Voltas Limited

CASE ANALYSIS 2: THE RESTRUCTURING OF VOLTAS LIMITED

S UBMITTED BY: C HANDRASEKHAR KOTILLIL, PGPX 6

Executive Summary
The case describes various events around the employee downsizing initiatives at Voltas Limited from 1997 to 2004. Background Voltas Limited was established in the pre-liberalization era, and grew at a steady rate until the late 1990s. Thereafter, when the Indian economy was opened up and price controls freed, an increase in competition led to a major hit on Voltas bottomline. The management structure was overhauled and Mr. Ashok Soni took over with a mandate to turn around its operations. The management identified their main issues as excess manpower and operational inefficiencies and took on an aggressive stance to bring down the headcount through various means. Management Actions The Voltas management introduced several schemes like the Voluntary Retirement Scheme (VRS), Employee Separation Scheme (ESS) etc to ease non-functional and non-performing employees out of Voltas. They faced severe opposition from the Voltas employee union at the outset, but between 1997 and 2004, they still managed to bring down employee resource base from 10700 in 1970 to just about 3600 by 2004. Though the actions taken by the management led to Voltas posting a profit of 12.79 Crores in 199899 vis--Vis a loss of 9.55 Crores the previous year, the steps taken for employee downsizing were perceived by most industry observers as harsh and imprudent. The analysis of the case goes into the details of the pros and cons for this management action and what they could have done differently.

Analysis of the Context In Hindsight

The Voltas case is not just about employers vs. employees or employers vs. the workers union, rather it is a study in the challenges that organizations face in sustaining growth without compromising human values & ethics and in preserving the morale of the workforce. The management of Voltas is part of the larger Tata Group, which is known for its high standards of ethics, fair treatment and employee welfare (viz. the Tata Code of Conduct). There are several facts in the case where workers and managers felt that the Tata Code of Conduct has not been honoured in letter or in spirit. In analyzing the actions taken by the management and the impact on the workers, the statements/reflections made by current and ex-employees is insightful. The below table summarizes some of the more pertinent views and their justifications: S N o 1 Management Action Introduction of the VRS and ESS scheme Management Justification Bring down labour overheads. A more dignified option than just laying off workers , ensuring financial Employees/Worke rs View Management created a fear psychosis , coercion and the threat of zero Rationale of Workers View The Union was not convinced about the genuine reasons for the downsizing. While laying off workers, the
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SHRM Term 2 Case Analysis

The Restructuring of Voltas Limited compensation The workers and the union perceived this as another management trick to force more and more employees to take VRS or voluntarily separate intake of managers actually increased. To a certain extent this was true as in many cases, several of the employees who were asked to leave had earned multiple promotions in the past year, proving their competency. Also, workers who were moved to other units for load balancing found no new work in their new units.

Pay cuts and separation notices to under performers

security for at least a few more years Introducing a culture of performance Shape Up or Ship Out. Strong measures required to build discipline

The simple view of the case is that the management was justified in its actions as it is accountable to its shareholders. However in the then and current economic scenario, a post-facto analysis of this case reveals that the Voltas management was hasty in making its decisions and actually alienated a large part of its surviving workforce. Management Oversights Key points Was the Management genuine in its decision to downsize? The facts in the case point to one fact that the management wanted to eliminate as many workers as possible , even in the core division. If there was a financial target to meet , then its not obvious in the case. Mr. Soni had a general target in mind and that was to reduce manpower strength by about 60% , and Voltas did achieve it. There is a hint in the manner in which was done to indicate that the management wanted to break the hegemony of the union in the process , an objective where it succeeded. Some of the measures taken by the management such as settling workers dues at the gate , asking workers to stay at home and not providing for medical benefits after VRS/ESS or termination are shocking in terms of its treatment and in complete anti-thesis to the much touted Tata Code of Conduct. Communication failure At no point in the case did the management explain the rationale behind the downsizing decision. They did not take into account the authority and acceptance of the union and they underestimated the value of the trade union in being able to communicate management decisions in the workers language. The VRS/ESS notices drafted by the legal team were in English and not in the vernacular Marathi. Such actions further alienated workers. Ethical treatment of workers/Code of Conduct Adherence Voltas over the past several years had built a reputation of being an employer with the welfare of employees in mind , but in the downsizing drive , had begin to lose sight of some of the core values as indicated by the sub-standard medical facilities and the usage of threat/coercive tactics on the shop floor. Stakeholder analysis

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SHRM Term 2 Case Analysis

The Restructuring of Voltas Limited

The question that begs to be asked is that why did the management attempt to systematically undermine the role of the trade union through overt (legal suits/stay orders) and covert means (veiled threats of shutdowns/layoffs). It appears from the case that Voltas had a short term view of trying to improve profitability through a) Downsizing and b) Closing unprofitable units. However , they fail to engage the union on this objective and take their view of the intended action. Goal Clarity If downsizing and setting up performance measures was crucial to Voltas turnaround , then this mission statement was not communicated clearly to the organization at large. Transparency and Self-Governance An important aspect of management decision making was that they failed to communicate to workers that the same productivity and profitability measures that applied to workers applied to the management as well. Hiring even more managers (with a view towards implementing the restructuring) gave out wrong signals to the workers and the union. Overcoming Anti-establishment Bias Many large organizations often fail to understand the power of the anti-establishment effect. This points to yet another communication failure. In the reading reference to this case by Mishra and Speitzer , a specific example is provided for in the case of Craig Parr who goes out of his way to work with employees in the lower echelons during the downsizing rather than with his superiors. Such actions go a long way towards negating the anti-establishment bias. Managing Survivor Morale During the course of the restructuring , there is no indication that the company has taken steps towards improving employee morale and appreciating the work put in by the workers who have been retained. There is a possibility that this could lead to attrition and in the changing economic environment where competitors were emerging , the potential consequences of losing your remaining high performing workers is disastrous.

Future Course of Action for Voltas

While it is easy to criticize management actions during downsizing , it can be argued that if downsizing is done in combination with sincerity , transparency in approach and a genuine concern for the separated employees, then the company can salvage its reputation and attractiveness as an employer where a bright , hard working , high performing employee can seek to build a career in. Some points that the management should keep in mind while going forward with their strategy: Communicate management accountability to the bottomline Build an atmosphere of trust and cooperation Leverage and get a buy-in from the trade union on employee welfare Build a culture of performance through critical self-appraisal Institute a Rewards and Recognitions program Value employees through Loyalty Awards Increase cross-training and competency development for workers

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