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CASE STUDY The Case Of The Involuntary VRS By R Chandrasekhar
The call came through just before his secretary was about to leave for the day. K. `Raj' Rajkumar, the 41-year-old President of the Mumbai-based Maple Petrochemicals (Maple), had been impatiently waiting for it. He allowed the telephone to ring thrice before he eventually picked it up. In the 3 months he had interacted with James Roberts, he couldn't remember a single occasion when the latter had called at the promised time. In many ways, the florid-faced 55-year-old CEO of Hetty Inc.--one of the biggest petrochemicals corporations in the world--belonged to the old school. He still believed he could make his guests wait for an hour before he condescended to see them. If Raj had his way, he would have told his boss not to have anything to do with Roberts. But he knew that Harish Sujan was keen that the deal with Hetty Inc. be wrapped up--soon. Not just keen but, as some of the more outspoken members of Maple's Executive Committee pointed out, desperate. For, two such deals had fallen through in the last 2 years. With industry top-dog Sree Petrochemicals increasing the pressure, it was in Maple's interests to identify a global partner who could help the company improve the quality of its operations. And acquire the latest technology for the manufacture of petrochemicals-based plastics, like polyethylene and polyvinyl chloride, and synthetics, like polyester staple fibre. That evening, Roberts had been, by his standards, punctual. The e-mail message from Texas had said that he would call at 18:30 hrs ist. So, he was off the mark by a mere 25 minutes. "Raj, how are you?" boomed the Southerner. Before he could get a word in, Roberts had already said his piece: "I discussed our joint venture proposal with my board yesterday evening. They've given me the go-ahead. But there are some pre-conditions we need to discuss. I've asked Rupert Solomon, our Vice-President (Corporate), to send you an e-mail by 10 a.m. tomorrow outlining them. Let's set up another chat, say, at the same time tomorrow evening." Sujan, Raj knew, was unavailable till the day after since he was holidaying in the Maldives. And most of the Executive Committee members were travelling. But he didn't want to tell Roberts that since it seemed to imply that they weren't serious about the deal. "Jim," he lied, "I have to be in Delhi tomorrow. So, let's do it the day after, if that's okay with you." "That's fine," boomed Roberts. "Judy will confirm the exact time I will call. By the way, if you need any clarifications, speak to Rupert directly. Right then?" The line went dead before Raj could say anything more. The message arrived on schedule the next day. "Jim asked me to send to you some of the findings of our audit team, which visited your plant a month ago," Solomon wrote blandly. "You may find the results interesting." The rest of the message was drowned in statistics:
Somehow, Raj knew what was coming: "We recommend that Maple reduce its headcount by 50 per cent over a 3-year period." Raj had to accept the legitimacy of some of the points raised by Hetty. Maple was a professionally-managed company, but Sujan insisted that the company treat its employees more as faithful family-retainers who could expect to, one day, see their children take their place in the organisation, or their own tenure lengthened by post-retirement extensions. While Hetty's auditors had compared Maple to their own organisation, even a local initiative, which had benchmarked the company against Sree Petrochemicals, indicated that the company was overstaffed. This, in an industry like petrochemicals, where it was possible to reduce labour through large-scale automation. The numbers said it all: Sree Petrochemicals' manpower costs-to-fixed costs ratio was a mere 14 per cent. Indeed, if Maple could bring its own costs to that level, its profitability would soar. Raj had often spoken to his chairman on the subject, but Sujan had been loath to ask "his people" to leave. As soon as he had finished reading the message, Raj forwarded it to the 5 Committee members and Sujan. There was no time to call a meeting; he would try and meet with them individually before his next conversation with Roberts. Vivek Mathur, Maple's feisty 51-year-old Vice-President (Marketing), didn't get to see the message till the next morning. He was pragmatic enough to realise that Hetty's demand wasn't unreasonable. But he was concerned about the timing. He was aware that Maple had been through a rough year. But, thanks, in part, to operational improvement initiatives like TQM, it was one of India's 2 petrochemicals companies--Sree Petrochemicals was the only other--to stay unscathed by the recession so far. Well, almost. The company had sold off 2 wholly-owned subsidiaries--one in the readymade garments and another in the industrial containers businesses in the last 2 years--and its Other Income had accounted for a not insignificant proportion of the company's turnover. But Mathur had a suspicion that there was an impression among the workers that everything was fine--especially since the company had not incurred a loss. He was convinced a Voluntary Retirement Scheme (VRS) was required. While it did fit in well with Maple's age-profile, it would be difficult to market such a scheme when the times were still good. He decided to pick the brains of Maple's Vice-President (HRD), Wilfred D'Souza, over lunch. The 6th floor canteen was unusually crowded. After helping themselves, Mathur and D'Souza edged towards a corner table, where they wouldn't be disturbed. They could see Mukul Padgaonkar, Maple's firebrand trade union leader, holding court in one corner. They would have to keep their voices down. D'Souza listened to Mathur's apprehensions. He had a contrary point of view; the best time for a VRS, he maintained, was when the going was good. "Otherwise, it could well mean a desperate measure to cut costs and boost margins," he told Mathur. "The flaw in your argument is the assumption that the sole aim of the VRS is to cut costs. And that the employees will be loath to accept the logic for reducing costs since the company is doing well. Let's not look at the VRS as a cost-management tool. After all, we did prune our operating costs by 20 per cent over the last 2 years through TQM. And the VRS will, post-implementation, result in a cost-benefit that is nowhere near that figure." Mathur was willing to look beyond the cost-benefits, but he still had some doubts about Maple's ability to implement it: "Since reducing the headcount is the stated objective, a VRS seems to be the only option," he pointed out. "In that case, the success lies in how well you market it to your employees, isn't it?" "I am a bit wary of that," objected D'Souza. "It, somehow, gives the impression that the scheme isn't voluntary. The essence of a good VRS lies in identifying the people who are not adding value. And devising an exit policy that is attractive so that they accept it." Komal Prakash managed to reach Maple Towers only around 6 p.m.. His secretary wasn't around, but she had left a few Post-It notes for Maple's portly, 44-year-old Vice-President (Manufacturing). One of them said: "Please check your mail-box. Msg from Raj." Five minutes later, as he read and re-read Raj's e-mail, Prakash experienced a feeling of deja vu. He couldn't help but remember his short stint with Bharat Organic Chemicals, from where he had moved to Maple as its General Manager (Operations), in end-1995. Soon after, that company had announced its intention to reduce its headcount by 400. A VRS was so successful that it proved to be an embarrassment for the company. As many as 210 managers and 200 supervisors and shopfloor workers had offered to retire. Among them were 100 employees whose skills were scarce: instrumentation engineers, R&D professionals, and infotech specialists. That's when the management exercised its prerogative, and refused to release them. The experience left several employees in the company bitter and disillusioned. Prakash decided to share his experience with the Executive Committee. There were valuable lessons to be learnt. Sample: a scenario-building exercise and a post-VRS skills inventory would serve as starting-points. That would help Maple identify the key employees who had to be retained in each department. They would have to be retrained, which would achieve two objectives. One, the employees could function optimally in their new roles. And the process itself was a signal the organisation was sending out to these employees, asking them to stay on. How could they make a VRS programme credible? The thought continued to dominate Raj's mind. Eventually, at around 5:30 p.m., he dialled Extension 401. Ten minutes later, when D'Souza walked in, he found Raj scribbling notes on a pad. "Sending out the right signals is going to be important, if we decide on a VRS. For instance, we have already decided not to replace those who have retired or resigned. Maybe, we should freeze recruitment for a while," started Raj. "Makes sense," replied D'Souza. But hiring wasn't the only issue. There was, he pointed out, the issue of overtime. "If the incidence of overtime increases, post-VRS, it will send out the signal that the company's stated reasons for one were false. We ought to disallow overtime altogether, or at least reduce it from the present 12 per cent of the wage-bill to 5 per cent." Raj nodded his agreement, making a mental note of it. "But what I am not sure of is whether we can afford this scheme at this point in time. In spite of selling 2 of our subsidiaries, one in 1997 and the other in 1998, our net margins in 1996-97 and 1997-98 were just around 5 and 7 per cent. And they were 6 per cent in 1995-96. I do not know how much the VRS will cost--it depends on the way we structure it--but considering the fact that we have to reduce our headcount by half, the amount is not likely to be small. I've done some ballpark calculations, and they indicate that the number will be close to Rs 12 crore in the first year itself." D'Souza wasn't a numbers man, and preferred to answer Raj's query qualitatively: "I agree, but the improvement we manage to bring about in our operations should be able to take care of that." Raj wasn't too sure: "Don't you think the morale of those who stay back will be low, causing them to work at a sub-optimal level for some time, and, then, quietly put in their papers?" D'Souza moved on. "That's a risk we have to take. We may be able to avoid it by looking at new work-methods. We need to ensure that we do not fall back on our old ways after the VRS." What D'Souza had in mind was to restart a project on a performance-measurement system that he had initiated in early 1997, with the assistance of a human resources consulting firm, People Resources. The aim had been to revisit job-roles and expectations, define the competencies required, and decide the performance-standards. Somehow, the project never got the support of the functional heads, and it died a slow death. Maybe, thought D'Souza, he could now prod Raj into pushing through the project again. POSTSCRIPT. Sujan, predictably, decided to take up Hetty's offer on its terms. A VRS was announced, but no worker seemed keen to take it up. Especially since the union refused to believe that Maple needed to downsize its workforce after so many good years. Besides, Padgaonkar had got wind of the Hetty angle, and believed that the transnational would, eventually, buy out the Sujan family's stake in the company. And that, he told anyone willing to listen to him, could only be good for the workers. Roberts didn't view Maple's dismal beginning at its effort to reduce headcount too favourably. His company, he told Raj during the course of an uncharacteristically brusque telephonic tête-a-tête, was reviewing its decision to invest in Maple. |
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Synopsis: Like every
Voluntary Retirement Scheme, the one doing the should-we-shouldn't-we rounds at Maple
Petrochemicals promised to be painful. What added insult to injury was the origin of the
proposal: prospective partner, Hetty Inc., and its overbearing CEO, James Roberts, who had
made the downsizing a pre-condition. And so, Maple's President, K. Rajkumar, was faced
with the task of explaining to an up-beat workforce that their company's escape from the
recession was no guarantee of its future. Hindustan Organic's R. Ramachandran, IRII's R.
Krishnamurthy, Philips' V. Kaul, and TISS' A. Gangopadhyay discuss the issues involved. A
BT Case Study. 