Case Studies

GROUP 1
BATA
Bata India's HR Problems
For right or wrong reasons, Bata India Limited (Bata)
always made the headlines in the financial dailies and
business magazines during the late 1990s. The
company was headed by the 60 year old managing
director William Keith Weston (Weston). He was
popularly known as a "turnaround specialist" and had
successfully turned around many sick companies
within the Bata Shoe Organization (BSO) group.
By the end of financial year 1999, Bata managed to

report rising profits for four consecutive years after
incurring its first ever loss of Rs. 420 mn in 1995.
However, by the third quarter ended September 30,
2000, Weston was a worried man. Bata was once
again on the downward path. The company’s nine
months net profits of Rs 105.5 mn in 2000 was
substantially lower than the Rs. 209.8 mn recorded in
1999. Its staff costs of Rs. 1.29 bn (23% of net sales)
was also higher as compared to Rs. 1.18 bn incurred
in the previous year. In September 2000, Bata was
heading towards a major labour dispute as Bata
Mazdoor Union (BMU) had requested West Bengal
government to intervene in what it considered to be a
major downsizing exercise.
Bata- A Household Name

With net revenues of Rs. 7.26 bn and net profit of Rs. 300.46 mn for the financial year
ending December 31, 1999, Bata was India's largest manufacturer and marketer of
footwear products. As on February 08, 2001, the company had a market valuation of Rs.
3.69 bn. For years, Bata's reasonably priced, sturdy footwear had made it one of India's
best known brands. Bata sold over 60 million pairs per annum in India and also exported its
products in overseas markets including the US, the UK, Europe and Middle East countries.
The company was an important operation for its Toronto, Canada based parent, the BSO
group run by Thomas Bata, which owned 51% equity stake.
The company provided employment to over 15,000 people in its manufacturing and sales
operations throughout India. Headquartered in Calcutta, the company manufactured over
33 million pairs per year in its five plants located in Batanagar (West Bengal), Faridabad
(Haryana), Bangalore (Karnataka), Patna (Bihar) and Hosur (Tamil Nadu). The company
had a distribution network of over 1,500 retail stores and 27 wholesale depots. It
outsourced over 23 million pairs of footwear per year from various small-scale
manufacturers.
Throughout its history, Bata was plagued by labor problems with frequent strikes and
lockouts at its manufacturing facilities. The company incurred huge employee expenses
(22% of net sales in 1999). Competitors like Liberty Shoes were far more cost-effective with
salaries of its 5,000 strong workforce comprising just 5% of its turnover.
When the company was in the red in 1995 for the first
time, BSO restructured the entire board and sent in a
team headed by Weston. Soon after he stepped in
several changes were made in the management.
Indians, who held key positions in top management,
were replaced with expatriate Weston taking over as
managing director. Mike Middleton was appointed as
deputy managing director and R. Senonner headed
the marketing division. They made several key
changes, including a complete overhaul of the
company's operations and key departments. Within
two months of Weston taking over, Bata decided to
sell its headquarter building in Calcutta for Rs. 19.5
crores, in a bid to stem losses. The company shifted
wholesale, planning & distribution, and the
commercial department to Batanagar, despite
opposition from the trade unions. Robin Majumdar,
president, co-ordination committee, Bata Trade Union,
criticised the move, saying: "Profits may return, but
honor is difficult to regain." The management team
implemented a massive revamping exercise in which
more than 250 managers and their juniors were asked
to quit. Bata decided to stop further recruitment.
The management team implemented a massive revamping exercise in which more than 250
managers and their juniors were asked to quit. Bata decided to stop further recruitment.
The management offered its staff performance based salary. In 1996, for the first time in
Bata's 62-year-old history, the company signed a long-term bipartite agreement. This
agreement was signed without any disruption of work. Recalls Majumdar: "We showed the
management that we could be as productive as any other union in the country." In the six-
year period 1993-99, Bata had considerably brought down the staff strength of its
Batanagar factory and Calcutta offices to 6,700.
In fiscal 1996, Bata was back in the black with the company reporting net profits of Rs. 41.5
mn on revenues of Rs. 5.90 bn (Rs. 5.32 bn in 1995). In fiscal 1997, Bata further
consolidated the gains with the company reporting net profits of Rs 166.9 mn on revenues
of Rs. 6.70 bn. A senior HR manager at the company admitted that with an upswing in
Bata's fortunes, even its traditionally intransigent workers were motivated to do better. In
1997, Bata workers achieved 93% of their production targets. The management rewarded
the workers with a 17% bonus, up from the 15% given in 1996.
By the end of 1997, Bata still faced problems of a high-cost structure and surplus labour.
Infact, the turnaround had made the unions more aggressive and demanding. Weston had
failed to strike a deal with the All India Bata Shop Managers Union (AIBSMU) since the third
quarter of 1997. The shop managers were insisting that Bata honor the 1990 agreement,
which stipulated that the management would fill up 248 vacancies in its retail outlets. It also
opposed the move to sack all the cashiers in outlets with annual sales of less than Rs 5 mn,
which meant elimination of 690 jobs.
In 1999, the Bata management in a bid to further cut costs announced the phasing out of
several welfare measures at its Batanagar Unit. Among the proposals were near total
withdrawal of management subsidies, canteen facilities, township maintenance, electricity
and health care schemes for the employees’ families. Other measures were aimed at
increasing productivity, reorganizing some departments and extending working days for
some essential services. On January 14, 1999, the BMU submitted their charter of demands
to the management. The demands mainly revolved around economic issues. In the list of
non-economic issues was the demand for reinstatement of the four dismissed
employees.1 The Union had also demanded the introduction of a scheme for workers
participation in management. On the economic front, the Union had demanded a wage hike
of around Rs. 90 per week, additional allowances as provident fund over the statutory limit
by the management, increase in 'plan bonus' and introduction of attendance bonus for
migrant workers.
In July 1999, BMU was finally able to strike a deal. It signed a three-year wage agreement
that included a lumpsum payment of arrears of Rs. 4,000 per employee. The management
agreed to include 10% of the 400 contract laborers at Batanagar in its staff.
Other gains included an average increase of Rs. 45.50
in the weekly pay of the 5,600 employees in
Batanagar, an improved rate of DA and increase in
tiffin allowance. However, canteen rates had been
doubled from Rs. 0.75 for a meal to Rs. 1.50. For the
500 families staying at Batanagar, the electricity rates
had been doubled to Rs. 0.48 per unit. BMU was
successful in preventing the management from
dismantling the public health unit in which 80 people
were employed. In September 1999, the West Bengal
State labour tribunal in an order justified and upheld
Bata's action of suspending and subsequent
dismissing of three executive members of the BMU.
The tribunal had provided no relief to the dismissed
members who had been found guilty of assaulting the
chief welfare officer at the Batanagar unit on
November 26, 1996.
Assault Case
More than half of Bata's production came from the
Batanagar factory in West Bengal, a state notorious
for its militant trade unions, who derived their
strength from the dominant political parties, especially
the left parties.
Notwithstanding the company's grip on the shoe market in India, Bata's equally large
reputation for corruption within, created the perception that Weston would have a difficult
time. When the new management team weeded out irregularities and turned the company
around within a couple of years, tackling the politicized trade unions proved to be the
hardest of all tasks.
On July 21, 1998, Weston was severely assaulted by four workers at the company's factory
at Batanagar, while he was attending a business meeting. The incident occurred after a
member of BMU, Arup Dutta, met Weston to discuss the issue of the suspended employees.
Dutta reportedly got into a verbal duel with Weston, upon which the other workers began to
shout slogans. When Weston tried to leave the room the workers turned violent and
assaulted him. This was the second attack on an officer after Weston took charge of the
company, the first one being the assault on the chief welfare officer in 1996. Soon after the
incident, the management dismissed the three employees who were involved in the
violence. The employees involved accepted their dismissal letters but subsequently
provoked other workers to go in for a strike to protest the management's move. Workers at
Batanagar went on a strike for two days following the incident. Commenting on the strike,
Majumdar said: "The issue at Bata was much wider than that of the dismissal of three
employees on grounds of indiscipline. Stoppage of recruitment and continuous farming out
of jobs had been causing widespread resentment among employees for a long time."
Following the incident, BSO decided to reconsider its investment plans at Batanagar. Senior
vice-president and member of the executive committee, MJZ Mowla, said 2: "We had chalked
out a significant investment programme at Batanagar this year which was more than what
was invested last year. However, that will all be postponed."
The incident had opened a can of worms, said the company insiders. The three men who
were charge-sheeted, were members of the 41-member committee of BMU, which had
strong political connections with the ruling Communist Party of India (Marxist). The trio it
was alleged, had in the past a good rapport with the senior managers, who were no longer
with the organization. These managers had reportedly farmed out a large chunk of the
contract operations to this trio.
Company insiders said the recent violence was more a political issue rather than an
industrial relations problem, since the workers had very little to do with it. Seeing the
seriousness of the issue and the party's involvement, the state government tried to solve
the problem by setting up a tripartite meeting among company officials, the labor
directorate and the union representatives. The workers feared a closedown as the inquiry
proceeded.
Industrial Relations
For Bata, labor had always posed major problems.
Strikes seemed to be a perennial problem. Much
before the assault case, Bata's chronically restive
factory at Batanagar had always been plagued by
labor strife. In 1992, the factory was closed for four
and a half months. In 1995, Bata entered into a 3-
year bipartite agreement with the workers,
represented by the then 10,000 strong BMU, which
also had the West Bengal government as a signatory.
It was in 1998, that the company for the first time
signed another long-term bipartite agreement with
the unions without any disruption of work.
Apprehensive about labor problems spilling over to
other units, the company entered into similar long-
term agreements with the unions at its manufacturing
units at Bangalore and Faridabad.
In February 1999, a lockout was declared in Bata’s

Faridabad Unit. Middleton commented that the closure
of the unit would not have much impact on the
company’s revenues as it was catering to lower-end
products such as canvas and Hawaii chappals. The
lock out lasted for eight months. In October 1999, the
unit resumed production when Bata signed a three-
year wage agreement.
On March 8, 2000, a lockout was declared at Bata's Peenya factory in Bangalore, following a
strike by its employee union. The new leadership of the union had refused to abide by the
wage agreement, which was to expire in August 2001. Following the failure of its
negotiations with the union, the management decided to go for a lock out. Bata
management was of the view that though it would have to bear the cost of maintaining an
idle plant (Rs. 3 million), the effect of the closures on sales and production would be
minimal as the footwear manufactured in the factory could be shifted to the company's
other factories and associate manufacturers. The factory had 300 workers on its rolls and
manufactured canvas and PVC footwear.
In July 2000, Bata lifted the lockout at the Peenya factory. However, some of the workers
opposed the company's move to get an undertaking from the factory employees to resume
work. The employees demanded revocation of suspension against 20 of their fellow
employees. They also demanded that conditions such as maintaining normal production
schedule, conforming to standing orders and the settlement in force should not be insisted
upon.
In September 2000, Bata was again headed for a labour dispute when the BMU asked the
West Bengal government to intervene in what it perceived to be a downsizing exercise being
undertaken by the management. BMU justified this move by alleging that the management
has increased outsourcing of products and also due to perceived declining importance of the
Batanagar unit. The union said that Bata has started outsourcing the Power range of fully
manufactured shoes from China, compared to the earlier outsourcing of only assembly and
sewing line job. The company's production of Hawai chappals at the Batanagar unit too had
come down by 58% from the weekly capacity of 0.144 million pairs. These steps had
resulted in lower income for the workers forcing them to approach the government for
saving their interests.
PS: Weston resigned on January 30, 2001. This came as a severe setback to the Bata
management.
Q1. What are the basic problems associated with the case?
Q2. What alternatives can be suggested to overcome the above challenges?
Q3. Present a precise picture of the given case.

GROUP 2
TAJ
The employee at Taj is viewed as an asset and is the real profit center. He or she is the very
reason for our survival. The creation of the Taj People Philosophy displays our commitment
to and belief in our people. We want an organization with a very clear philosophy, where we
can treasure people and build from within."
- Bernard Martyris, Senior Vice-President, HR, Indian Hotels Company Limited
(IHCL).
Introduction
In March 2001, the Taj Group1 launched an employee loyalty program called the 'Special
Thanks and Recognition System' (STARS). STARS was an initiative aimed at motivating
employees to transcend their usual duties and responsibilities and have fun during work.
This program also acknowledged and rewarded hard working employees who had done
excellent work.
The Taj Group had always believed that their employees were
their greatest assets and the very reason for the survival of
their business. In 2000, to show its commitment to and belief in
employees, the Taj Group developed the 'Taj People Philosophy'
(TPP), which covered all the people practices of the group. TPP
considered every aspect of employees' organizational career
planning, right from their induction into the company till their
superannuation. TPP offered many benefits to the Taj Group. It
helped the company boost the morale of its employees and
improve service standards, which in turn resulted in repeat
customers for many hotels in the group. The STAR system also
led to global recognition of the Taj Group of hotels in 2002 when
the group bagged the 'Hermes Award' 2 for 'Best Innovation in
Human Resources' in the global hospitality industry.
The Taj People Philosophy
Since its establishment, the Taj Group (Refer Exhibit I) had a people-oriented culture. The
group always hired fresh graduates from leading hotel management institutes all over India
so that it could shape their attitudes and develop their skills in a way that fitted its needs
and culture. The management wanted the new recruits to pursue a long-term career with
the group. All new employees were placed in an intensive two-year training program, which
familiarized them with the business ethos of the group, the management practices of the
organization, and the working of cross-functional departments.
The employees of the Taj Group were trained in varied fields like
sales and marketing, finance, hospitality and service, front
office management, food and beverages, projects, HR and
more. They also had to take part in various leadership
programs, so that they could develop in them a strong, warm
and professional work culture.
Through these programs, the group was able to assess the

future potential of the employees and the training required to
further develop their skills. The group offered excellent
opportunities to employees both on personal as well as
organizational front3. In order to achieve 'Taj standards,'
employees were made to undergo a rigorous training program
(Refer Exhibit II).
The group strove hard to standardize all its processes and evolve a work culture, which
appealed to all its employees universally. The group believed that talent management 4 was
of utmost importance to develop a sustainable competitive advantage. The group aimed at
making the HR function a critical business partner, rather than just a support function. To
further show its commitment to and belief in employees, the group created the 'Taj People
Philosophy' (TPP) covering all people practices of the group. The concept of TPP, developed
in 1999, was the brainchild of Bernard Martyris (Martyris), Senior Vice-President, HR, IHCL,
and his core team. The concept, originally planned to be called as 'The Womb to Tomb
Approach,' covered all the aspects of an employee's career, from joining the group until
his/her retirement.
The Taj People Philosophy Contd...
TPP was based on the key points of the Taj employee charter (Refer Table I). It was
developed in line with the Tata Business Excellence Model (TBEM) 5. Explaining the rationale
for implementing the philosophy, Martyris said, "It is to achieve that international
benchmarking in hospitality, and HR must fit into it."
TABLE I
KEY POINTS OF THE TAJ CHARTER
Some of the key points of the Taj Charter are given below:
• Every employee of the Taj Group would be an important member in the Taj
family.
• The Taj family would always strive to attract, retain and reward the best talent
in the industry.
• The Taj family would commit itself to formal communication channels, which
would foster transparency.
Source: www.tata.com
According to him, the three major areas of TPP included work systems and processes;
learning and development; and employee welfare. As part of the TPP, the Taj Group
introduced a strong performance management 6 system, called the Balanced Scorecard
System (BSS) that linked individual performance with the group's overall strategy.
BSS was based on a model developed by Kaplan and Nortan 7, and focused on enhancing
both individual as well as enterprise performance. BSS measured the performance of
employees across all hierarchical levels against a set of predefined targets and identified
their variances. Martyris explained, "We are looking at a matrix form of organization which
cuts across hierarchy. It is important to understand the potential of people." Therefore, BSS
was implemented even at the lowest levels of the hierarchy.
The Taj People Philosophy Contd...
The BSS included an Employee Satisfaction Tracking System (ESTS), which solved
employees' problems on a quarterly basis. As a part of ESTS, Taj carried out an organization
wide employee satisfaction survey in mid 2000 of about 9000 employees. According to this
survey, the reported satisfaction level was about 75 percent. The group aimed to increase
this level to 90-95 percent, and eventually to 100 percent. The group also took strong
measures to weed out under-performers.
The group adopted the 360-degree feedback system to evaluate the performance of all top
officials, from the Managing Director to departmental managers, in which they were
evaluated by their immediate subordinates. The 360-degree feedback was followed by
personal interviews of individuals to counsel them to overcome their deficiencies. The Taj
Group also established Centers of Excellence for its 14,000 employees at five locations in
India including Jaipur, Bangalore, Ernakulam, Chennai and Hyderabad.
At these centers, departmental heads in each functional area
were trained. These departmental heads later trained their own
staff. The training included foundation modules and
accreditation programs that familiarized the employees with Taj
standards.
Apart from adopting stringent measures to improve

performance, Taj also recognized and rewarded its best
employees across all levels of the organization. For this
purpose, Taj created a unique employee loyalty and reward
program known as STARS.
Describing the program, Martyris said, "It's an HR initiative

aimed at creating an association 'between our star performers
and our brand, the Taj.'"
The Star System
The STAR system (STARS) was the brainchild of Martyris. The system was developed in
accordance with Taj's core philosophy that 'happy employees lead to happy customers.'
STARS, operative throughout the year (from April to March), was open to all employees
across the organization, at all hierarchical levels. It aimed to identify, recognize and reward
those employees who excelled in their work.
The Star System Contd...
STARS was actively promoted across the group's 62 chain of hotels and among its 18,000
employees globally, out of which 15,000 were from India. STARS had five different levels.
Though employees did not receive any cash awards, they gained recognition by the levels
they attained through the points they accumulated for their acts of kindness or hospitality.
'Level 1' was known as the 'Silver Grade'. To reach this level, employees had to accumulate
120 points in three months.
To attain 'Level 2', known as the 'Gold Grade,' employees had to accumulate 130 points
within three months of attaining the silver grade. To reach 'Level 3', called the 'Platinum
Grade', employees had to accumulate 250 points within six months of attaining the gold
grade. To attain 'Level 4', employees had to accumulate 510 or more points, but below 760
points, to be a part of the Chief Operating Officer's club.
'Level 5' which was the highest level in STARS, enabled
employees to be a part of the MD's club, if they accumulated
760 or more points.
Points were granted to employees on the basis of parameters

like integrity, honesty, kindness, respect for customers,
environmental awareness, teamwork, coordination, cooperation,
excellence in work, new initiatives, trustworthiness, courage and
conviction, among others.
Suggestions by employees that benefited the organization

fetched them significant points (Refer Exhibit III). Such
suggestions in each hotel of the Taj Group were examined by
the General Manager, HR Manager and training manager of the
hotel the employee worked in.
The suggestions could also be posted on the web, which were constantly monitored.
Employees could also earn points through appreciation by customers, 'compliment-a-
colleague' forums8 and various suggestion schemes. Employees could also get 'default
points' if the review committee did not give feedback to the employee within two days of
his/her offering a suggestion for the betterment of the organization.
The Star System Contd...
In such cases, the employee concerned was awarded '20 default points.' Hence, in an
indirect manner, the system compelled judges of the review committee to give feedback to
employees as early as possible. STARS helped employees work together as a team and
appreciate fellow employees for their acts of kindness and excellence. It enhanced their
motivation levels and led to increased customer satisfaction. In one case, a bellboy in one of
the group's hotel who received an American customer went out of his way to care for the
customer.
Noticing that the customer, who had arrived late at night, was suffering from cold, he
offered to bring him a doctor. However, the customer refused the boy's offer. The bellboy
then, on his own, offered a glass of warm water mixed with ginger and honey, a traditional
Indian home remedy for cough and cold. The customer felt surprised and also happy at the
bellboy's gesture.
He left a note of appreciation for him, which added to his
existing points. According to the number of points accumulated,
employees would receive a star, which could be pinned on to
their coat.
When a certain number of points were collected, employees

received gift hampers, cash vouchers or a vacation in a Taj
Hotel of their choice in India. The winners of STARS were
felicitated at a function held in Taj, Mumbai.
The winners' photographs were displayed on a big screen at the

function and they received awards given by the MD of the Taj
Group. This awards ceremony significantly boosted their morale.
The STARS program had generated lot of attention among the
employees at the Taj Group.
During the initial phase, not every hotel seemed to be serious about adopting STARS, but
after the first awards ceremony was conducted, every hotel in the group reportedly became
very serious about the implementation of STARS. Reportedly, customer satisfaction levels
increased significantly after the implementation of STARS. Commenting on the success of
STARS, Martyris said, "After the campaign was launched, a large number of employees have
started working together in the true spirit of teams and this helps us value our human
capital. There are stars all around us but very often we look only at stars outside the system
he Star System Contd...
Many employees do that extra bit and go that extra mile, out of the way to dazzle the
customer satisfaction with employee recognition. Employee recognition is, hence, directly
linked to customer satisfaction. It is recognition for the people, of the people and by the
people." STARS was also used by the group as an appraisal system, in addition to its regular
appraisal system.
The Future Plans
The STARS was not only successful as an HR initiative, but it
brought many strategic benefits to the group as well.
The service standards at all hotels of the group improved

significantly because the employees felt that their good work
was being acknowledged and appreciated.
This resulted in repeat customers for Taj hotels. Because of

STARS, the Group won the 'Hermes Award 2002' for 'best
innovation in HR' in the hospitality industry.
Analysts felt that the fame and recognition associated with the
winning of the Hermes award would place the Taj Group of
hotels at the top of the list of the best hotels in the world.
The group also received requests for setting up hotels in Paris (France), where the 'Hermes
award' function took place. The HR practices at the Taj Group attracted several Human
Resources and Organizational Behavior experts' world over.
In late 2001, Thomas J. Delong, a professor of Organizational Behavior from Harvard

Business School (HBS), visited India and interviewed various employees in the Taj Group.
After his visit, the Taj Group was "envisioned as an example of organizational
transformation wherein key dimensions of cultural change went into the making of global
managers."
Analysts also felt that social responsibility and people-centric programs were the core values
at Taj Group, which were well demonstrated through the 'Taj People Philosophy.' Martyris
said, "The challenges here lay in retaining the warmth and relationship focus of the Taj and
inculcating a systems-driven approach to service."
The Future Plans Contd...
Analysts felt that the Taj Group had been highly successful because of its ability to provide
better opportunities and give greater recognition to its employees, which motivated them to
work to the best of their abilities.
The Employee Retention Rate (ERR) of the Taj Group was the highest in the hospitality
industry because of its employee-oriented initiatives. In spite of the highest ERR; Martyris
felt that the retention of talent was Taj's major challenge 9.
He said, "Our staff is routinely poached by not just industry competitors but also banks, call
centers and others. In 2002, in the placements process at the hotel management institute
run by the Taj, more than half of those passing out were hired by non-hospitality
companies. While we are happy to see the growth and opportunity for this sector, we also
feel there is a need for introspection.

GROUP 3
HP
Reorganizing HP: The Problems
In the mid 1990s, global computer major HP1 was
facing major challenges in an increasingly competitive
market. In 1998, while HP's revenues grew by just
3%, competitor Dell's rose by 38%. HP's share price
had remained more or less stagnant, while competitor
IBM's share price had increased by 65% during 1998.
Analysts said HP's culture, which emphasized
teamwork and respect for co-workers, had over the
years translated into a consensus-style culture that
was proving to be a sharp disadvantage in the fast-
growing Internet business era. Analysts felt that
instead of Lewis Platt, HP needed a new leader to
cope with the rapidly changing industry trends.
Responding to these concerns, the HP board

appointed Carleton S. Fiorina (Fiorina) 2 in July 1999
as the CEO of the company. Revenues grew by 15%
for the financial year ended October 2000 (Refer
Exhibit I), prompting industry watchers to say that
Fiorina seemed all set to put HP's troubles behind for
good. However, for the quarter ended January 31,
2001, the net profits were well below the stock
market expectations. Soon there was more bad news
from the company.
In late January 2001, after forcing a five-day vacation on the employees and putting off
wage hikes for three months in December 2000, HP laid off 1,700 marketing employees. By
early February 2001, HP's share price fell 18.9%, from $45 in July 1999 to $36.
In April 2001, citing a slowdown in consumer spending, Fiorina announced that HP's
revenues would decrease by 2% to 4% for the quarter ending April 30, 2001. She also said
that HP would in all likelihood show no growth for the next two quarters. Many analysts and
competitors were surprised at this announcement. According to some analysts, the major
reason for the shortfall in revenue was Fiorina's aggressive management reorganization.
They said that with the global slowdown in the technology sector, it was the wrong time to
reorganize.
Things worsened when HP laid off 6,000 more workers in July 2001. The lay-offs came less
than a month after 80,000 employees had willingly taken pay-cuts. The management also
sent memos saying that layoffs would continue and just volunteering for pay-cuts would not
guarantee continued employment. According to company insiders, though these changes
were necessary, they had affected employee morale. Many employees had lost faith in
Fiorina's ability to execute her reorganization plans.
Stanford engineers Bill Hewlett and David Packard
founded HP in California in 1938 as an electronic
instruments company. Its first product was a
resistance-capacity audio oscillator, an electronic
instrument used to test sound equipment. During the
1940s, HP's products rapidly gained acceptance
among engineers and scientists. HP's growth was
aided by heavy purchases made by the US
government during the Second World War.
Till the 1950s, HP had a well-defined line of related

products, designed and manufactured at one location
and sold through an established network of sales
representative firms. The company had a highly
centralized organizational structure with vice-
presidents for marketing, manufacturing, R&D, and
finance. HP had 90 engineers in product development.
To have a clear demarcation of goals and
responsibilities, and to promote individual
responsibility and achievement, HP began to organize
these engineers into smaller, more efficient groups by
forming four product development groups. Each group
concentrated on a family of related products and had
a senior executive reporting to the vice-president of
R&D.
The product-development staff functions were so restructured as to allow a design engineer
to concentrate only on the division's products and to work closely with the field salespeople.
As HP grew larger, it moved towards a divisional structure. By the 1960s, HP had many
operating divisions, each an integrated, self-contained organization responsible for
developing, manufacturing and marketing its own products. This structure, it was thought,
would give each division considerable autonomy, and create an environment that would
encourage individual motivation, initiative, and creativity in working towards common goals
and objectives. In the words of Packard, "We wanted to avoid bureaucracy and to be sure
that problem-solving decisions be made as close as possible to the level where the problem
occurred. We also wanted each division to retain and nurture the kind of intimacy, the
caring for people, and the ease of communication that were characteristic of the company
when it was smaller."
In the 1960s, HP made organizational changes for the sales representative firms. These
firms represented and sold the products of other non-competing electronics manufacturers
along with those of HP. This arrangement was creating problems 3 in the 1960s due to HP's
rapid growth. To get around these difficulties, HP set up its own sales organization, taking
care not to break ties with the existing representatives who were encouraged to join the
sales divisions of the company.
In 1968, HP adopted a group structure in response to the increasing number of operating
divisions and product lines. Divisions with related product lines and markets were combined
into a group headed by a group manager. Each group was made responsible for the
coordination of divisional activities and the overall operations and financial performance of
its members. The new structure had two objectives - to enable compatible units to work
together more effectively on a day-to-day basis, and to decentralize some top management
functions so that the new groups would be responsible for some of the planning activities
and other functions previously assigned to corporate vice-presidents.
The group structure improved HP's field marketing activities by enabling sales engineers to
understand and sell the entire line of HP products. Under this structure, the sales engineer
became the representative of a specific group, selling and supporting only that group's
products. Packard said, "As the company moved to a group structure, I stressed to our
people that this change did not represent any deviation from our traditional philosophy of
management. From the beginning we had a strong belief that groups of people should be
given full responsibility for specific areas of activity with wide latitude to develop their own
plans and make their own decisions. Our new organization did not alter this basic concept,
but strengthened it."
By the early 1970s, HP had grown from a highly
centralized, rather narrowly focused company into one
with many widely dispersed divisions and activities.
HP began to use a concept called 'ocal
decentralization,' wherein a division was given the full
responsibility for a product line (when it had grown
large enough) at a separate, but close, location.
HP's organizational charts provided only general

guidelines. As one divisional manager said, "In no way
do charts dictate the channels of communication used
by HP people. We want our people to communicate
with one another in a simple and direct way, guided
by common sense rather than by lines and boxes on a
chart. To get the job done, an individual is expected
to seek information from the most likely source. HP
systems increasingly include products from different
groups and divisions. Even though an organization is
highly decentralized, its people should be regularly
reminded that cooperation between individuals and
coordinated efforts among operating units are
essential for growth and success.
Although we minimize corporate direction at HP, we consider ourselves one single company,
with the flexibility of a small company and the strengths of a large one - the ability to draw
on corporate resources and services, shared standards, values and culture, common goals
and objectives, and a single world-wide identity."
Notwithstanding the efforts made by the top management to generate synergies across
divisions, the decentralized structure that HP had, till the 1980s, created major problems for
the company. HP began to be perceived by users as three or four companies, with little
coordination between them. When users of HP 3000 computers went to buy HP printers,
they found that the software loaded on their computers (which were made by another HP
division) wouldn't allow them to use it for graphics.
In the 1990s, HP found that its elaborate network of committees was slowing down its
ability to take quick decisions, especially those pertaining to new product development. To
address this problem, the then CEO John Young, dismantled the committee network, and as
a part of reorganization, also cut a layer of management from the hierarchy. He further
decentralized decision-making and divided the computer business into two primary groups.
One group was made responsible for PCs, printers and other products sold though dealers
and the other for workstations and minicomputers sold to large customers. To enable the
company to respond faster to market needs, each group was given its own sales and
marketing team. These changes enabled HP to gain market share in workstations and
minicomputers, and till the mid 1990s, HP performed well. The company's huge success in
printers and PCs had increased revenues from $13.2 billion in 1990 to $38.42 billion in
1996, with profits increasing at a fast pace.
However, with the growth in size of operations, came problems as well. With 83 different
product divisions, the bureaucracy had increased significantly. For instance, when Best Buy,
a retailing company wanted to buy some computer products, 50 HP employees came
forward to sell their units' products. A former executive at HP said, "I left HP because I did
not want to spend 80% of my time managing internal bureaucracy anymore." He revealed
that he once had to get an operational change cleared by 37 different internal committees.
There were reports that the bureaucracy was hindering innovation as well 4. Managers were
often reluctant to invest in new ideas for fear of missing their quarterly goals - HP had not
had a mega-breakthrough product since the inkjet printer was introduced in 1984. Despite
the lack of new products, Platt did nothing to motivate the product development teams.
Instead, he focused on promoting diversity in the workplace and on ensuring a more
humane balance of work and personal life for HP employees. Analysts felt that while these
efforts were praiseworthy, they did little to help the company face the tough business
environment in which it was operating.
Meanwhile, HP spun off its test-and-measurement unit (See Exhibit II) and divided its huge
portfolio of products into four divisions - Home PCs, Handhelds, and Laptops; Scanners,
Laser Printers, and Printer Paper; Consulting, Security Software, and Unix Servers; and Ink
Cartridges, Digital Cameras, and Home Printers. The head of each of these divisions was
given the same powers as that of a CEO. However, the company's stagnant revenues and
the declining profit growth rate in 1998 compounded its problems. It was at this stage that
Fiorina took over the company's reins.
Reorganization
Fiorina immediately introduced several changes, in an
attempt to set things right at HP. She began by
demanding regular updates on key units. She also
injected the much-needed discipline into HP's
computer sales force, which had reportedly developed
a habit of lowering sales targets at the end of each
quarter. Sales compensation was tied to performance
and the bonus period was changed from once a year
to every six months.
HP Labs, the company's R&D center had only been

making incremental improvements to existing
products. This was because engineers' bonuses were
linked to the number, rather than the impact of their
inventions. To boost innovation and new product
development, Fiorina increased focussed on
'breakthrough' projects. She started an incentive
program that paid researchers for each patent filing.
Fiorina developed a multiyear plan to transform HP

from a 'strictly hardware company' to a Web services
powerhouse (See Exhibit III). To achieve this plan,
Fiorina dismantled the decentralized organization
structure.
In early 2000, HP had 83 independent product divisions, each focused on a product such as
scanners or security software. The company had 83 product chiefs having their own R&D
budgets, sales staff, and profit-and-loss responsibility. In a bid to make HP an effective
selling organization, Fiorina reorganized these units into six centralized divisions (See
Exhibit IV). Three of these were product development groups - printers, computers, and
tech services & consulting (the 'back-end' units) and the other three were sales and
marketing groups - for consumers, corporate markets, and consulting services (the 'front-
end' units).
The back-end units developed and built computers, and handed over the products to the
front-end groups that sold these products to consumers as well as corporations. Fiorina
expected the new structure to strengthen collaboration, between sales & marketing
executives and product development engineers thus helping to solve the customer problems
faster. Industry experts said that this was the first time a company with thousands of
product lines and scores of businesses had attempted a front-back approach, a strategy that
required laser focus and superb coordination.
The new arrangement solved a number of long-standing HP problems, making the company
far easier to do business with. Rather than too many salespeople from various divisions,
now customers dealt with one person. It helped HP's product designers focus on what they
did best and gave the front-end marketers authority to make the deals that were most
profitable for the company. For instance, now they could sell a server at a lower margin to
customers who opted for long-term consulting services. The new R&D strategy resulted in
the doubling of patent filings from HP in 2001 to 3000, putting the company among the top
three patent filers in the world.
However, the reorganization soon ran into problems.
In the past, HP's product chiefs had run their own
operations from designing of the product to providing
sales and support. In the new set-up, they had a very
limited role. Though they were still responsible for
keeping HP competitive, achieving cost goals, and
getting products to market on time, they had to pass
on those products to the front-end organizations
responsible for marketing and selling them. With no
authority to set sales forecasts, back-end managers
were unable to allocate the R&D funds accordingly. At
the same time, front-end sales representatives had
trouble meeting their forecast if their back-end
colleagues came up with the wrong products.
With HP's 88,000 employees adjusting to the biggest

reorganization in the company's history, expenses had
risen out of control. According to one HP manager, "It
was frantic. The financial folks were running all
around looking for more dollars."
Freed from the decades-old lines of command, employees began spending heavily, with
dinner and postage expenses running far over the normal amount. Such lavish spending
was rare under the old structure where product chiefs kept a tight control on their
expenditures.
Analysts also claimed that in the new structure, the back-end product designers would not
be able to stay close enough to the customers to deliver products as per their requirements.
Neither would the executives responsible for selling thousands of HP products be able to
give sufficient attention to each of the products. Moreover, while productivity-linked
commissions to the sales force were intended to boost revenues and profitability, they only
helping in raised sales for low-margin products that did little for corporate profits.
The new structure did not clearly assign responsibility for profits and losses. With
responsibility for growth and profits shared between front-and back-end managers, there
was less financial control and more disorder. With employees in 120 countries, redrawing
the lines of communication and getting personnel from different divisions to work together
was proving very troublesome. According to one HP manager, "The people who deal with
Fiorina directly feel very empowered, but everyone else is running around saying, 'What do
we do now?'"
HP's customers were not happy either. The front-back reorganization had created confusion
internally, and many customers said they had noticed little improvement. According to one
computer reseller who had struggled for two months to get HP to work out a customized
configuration for one of its new servers, "It's beyond my ability to communicate our
frustration. It's painful to watch them mess up million-dollar deals."
HP in Trouble
Apart from these structural problems, Fiorina's tenure reportedly did little to improve HP's
business performance. The market share gains made in Fiorina's first year as CEO had
begun to recede in late 2000. While HP continued to dominate the inkjet and laser printer
business with a 41% market share, its PC share had fallen from 7.8% to 6.9% for the 12
months ended January 31, 2001.
Sales of HP's Windows servers had dropped from 10.6% to 8.2% in the same period. HP did
not perform well in the software, storage and consulting businesses where it had only a
single-digit market share. However, HP's share of the high-end Unix server business had
increased to 28% in the quarter ended January 31, 2001, (up from 23.3% the year before).
According to analysts, Fiorina had tried an approach that had never been attempted before
at a company of HP's size and complexity. She was accused of being over-ambitious in
trying to tackle all of HP's problems together at the same time. They said that putting in
place such sweeping changes was tough anywhere - more so in the case of the tradition-
bound HP, already suffering from the slowdown in the technology sector.

GROUP 4
SBI
VRS Troubles
In February 2001, India's largest public sector bank
(PSB), the State Bank of India (SBI) faced severe
opposition from its employees over a Voluntary
Retirement Scheme (VRS). The VRS, which was
approved by SBI board in December 2000, was in
response to Federation of Indian Chambers of
Commerce and Industry's (FICCI) report on the
banking industry. The report stated that the Indian
banking industry was overstaffed by 35%. In order to
trim the workforce and reduce staff cost, the
Government announced that it would be reducing its
manpower. Following this, the Indian Banks
Association (IBA) formulated a VRS package for the
PSBs, which was approved by the Finance ministry.
Though SBI promoted the VRS as a 'Golden

Handshake,' its employee unions perceived it to be a
retrenchment scheme. They said that the VRS was
completely unnecessary, and that the real problem,
which plagued the bank were NPAs . The unions
argued that the VRS might force the closure of rural
branches due to acute manpower shortage.
This was expected to affect SBI's aim to improve economic conditions by providing
necessary financial assistance to rural areas. The unions also alleged that the VRS decision
was taken without proper manpower planning. In February 2001, the SBI issued a directive
altering the eligibility criteria for VRS for the officers by stating that only those officers who
had crossed the age of 55 would be granted VRS. Consequently, applications of around
12,000 officers were rejected. The officers who were denied the chance to opt for the VRS
formed an association - SBIVRS optee Officers' Association to oppose this SBI directive. The
association claimed that the management was adopting discriminatory policies in granting
the VRS.
The average estimated cost per head for implementation of VRS for SBI and its seven
associated banks worked out to Rs 0.65 million and Rs 0.57 million respectively. As a result
of the VRS, SBI's net profit decreased from Rs 25 billion in 1999-00 to Rs 16 billion in 2000-
01.
The SBI was formed through an Act of Parliament in
1955 by taking over the Imperial Bank. The SBI group
consisted of seven associate banks:
 State Bank of Hyderabad
 State Bank of Indore
 State Bank of Mysore
 State Bank of Patiala
 State Bank of Saurashtra
 State Bank of Travancore
 State Bank of Bikaner & Jaipur
The SBI was the largest bank in India in terms of
network of branches, revenues and workforce. It
offered a wide range of services for both personal and
corporate banking. The personal banking services
included credit cards, housing loans, consumer loans,
and insurance. For corporate banking, SBI offered
infrastructure finance, cash management and loan
syndication.4
Over the years, the bank became saddled with a large workforce and huge NPAs. According
to reports, staff costs in 1999-2000 amounted to Rs 4.5 billion as against Rs 4.1 billion in
1998-99. Increased competition from the new private sector banks (NPBs) further added to
SBI's problems. The NPBs had effectively leveraged technology to make up for their size.
Though SBI had 9,000 branches, a mere 22% of those (1935 branches) were connected by
through Internet. In contrast all of HDFC5 Bank's 61 branches were connected. By 2000,
SBI's net profit per employee was Rs 0.43 million while HDFC's was Rs 0.96 million, and
SBI's NPA level was around 7.18% as against HDFC's 0.73% (Refer Table I).
Table I
A Comparison between SBI & Some NPBs
NPAs/Net Profit Per Employee (Rs in
Bank
Advances Million)
SBI 7.18% 0.43
HDFC 0.77% 0.96
UTI BANK 4.71% 0.69
ICICI BANK 1.53% 0.78
GTB 0.87% 1.2
IDBI BANK 1.95% 1.15
Source: www.bankersindia.com
Analysts remarked that the very factors that were once hailed as the strengths of SBI -
reach, customer base and experience - had become its problems. Technological tools like
ATMs and the Internet had changed banking dynamics. A large portion of the back-office
staff had become redundant after the computerization of banks. To protect its business and
remain profitable, SBI realized that it would have to reduce its cost of operations and
increase its revenues from fee-based services. The VRS implementation was a part of an
over all cost cutting initiative.
The VRS package offered 60 days' salary for every year of service or the salary to be drawn
by the employee for the remaining period of service, whichever was less. While 50% of the
payment was to be paid immediately, the rest could be paid in cash or bonds. An employee
could avail the pension or provident fund as per the option exercised by the employee. The
package was offered to the permanent staff who had put in 15 years of service or were 40
years old as of March 31, 2000.
The Protests
The SBI was shocked to see the unprecedented outcry
against the VRS from its employees. The unions
claimed that the move would lead to acute shortage of
manpower in the bank and that the bank's decision
was taken in haste with no proper manpower planning
undertaken. They added that the VRS would not be
feasible as there was an acute shortage of officers
(estimated at about 10000) in the rural and semi-
urban areas where the branches were not yet
computerized. Moreover, the unions alleged that the
management was compelling employees to opt for the
VRS. They said that the threat of bringing down the
retirement age from 60 years to 58 years was putting
a lot of pressure on senior bank officials to opt for the
scheme.
In December 2000, SBI had formed a joint venture

with the French insurance company Cardiff, for
entering the life insurance business. The unions
questioned the logic behind diversifying the business
and cutting down the staff strength.
They argued that this move would significantly increase workforce burden and,
consequently, adversely affect customer service. In 2000, SBI had undertaken a large-scale
clientele membership drive in some states to attract more customers. The unions opined
that the VRS could prove to be counterproductive as the increased business might not be
handled properly.
However, despite all the protests, SBI received around 35,000 applications for the VRS.
Analysts pointed out that many bank employees opted for the VRS due to the better
employment prospects with the NPBs. SBI had not anticipated such a huge response to the
scheme. While the VRS was mainly aimed at reducing the clerical staff and sub-staff, the
maximum number of optees turned out to be from the officer cadre. The clerical staff was
reluctant to go for the VRS due to the low employment opportunities for them in the NPBs.
According to reports, the number of applications from officers stood at 19,295, which meant
that over 33 per cent of the total officers in the bank had sought VRS.
Following huge response to the VRS from officer cadre, SBI issued a circular stating that the
management would relieve only those officer cadre applicants who had crossed the age of
55 years. The bank also issued a circular barring treasury managers, forex dealers and a
host of other specialized personnel, from seeking VRS. Employees who had not served rural
terms were also barred from opting for the scheme. The VRS was also not open to
employees who were doctorates, MBA's, Chartered Accountants, Cost & Works accountants,
postgraduates in computer applications. In another circular, SBI mentioned that any break
in service (i.e. leaves availed on a loss of pay basis) would not be taken while calculating
the service period. The bank also restricted the loan facilities to the personnel who had
opted for the VRS. If an employee wished to continue a housing loan after accepting VRS,
he was asked to pay interest at the market rate. After these restrictions were introduced,
only 13.4% of the officers were left eligible for VRS instead of the earlier 33%.
The conditions laid down by the management faced
strong criticism from the officers who had opted for
the VRS, but who could not meet the prescribed
criteria. They alleged that the bank was practicing
discrimination in implementation of the scheme and
that no other banks had implemented such policies
and denied the opportunity of VRS to officers who
were willing to avail the scheme.
Media reports also called SBI's decision to restrict the

VRS as arbitrary, discriminatory and belying the
voluntary character of the scheme. Unions argued
that if the bank was so particular that only 10% of its
staff leave under the VRS, it could have closed the
scheme immediately after the required number of
applications were received. The unions also argued
that 35,000 applications (14% of the total workforce)
could not be considered high when compared to the
response received by other public sector banks such
as Syndicate Bank (22%) and Punjab & Sind Bank
(19%), where all the applications that were received
were also accepted for VRS. The officers who were
denied the VRS formed an action group in March
2001. They claimed that SBI had violated the
guidelines of the Government and the Indian Banks
Association.
According to the members of the group, any shortfall in the number of officers could easily
be met by promoting suitable clerks. They also cited the example of Syndicate Bank, which
promoted about 1,000 clerical staff to officer level. The group filed cases before High Courts
in various parts of the country, challenging SBI’s decisions. A delegation of VRS-denied
officers even met the Finance Minister and also submitted a memorandum to the SBI
management.
The Post VRS Days

According to reports, SBI's total staff strength was expected to come down to around
2,00,000 by March 2001 from the pre-VRS level of 2,33,000 (Refer Table III). With an
average of 5000 employees retiring each year, analysts regarded VRS as an unwise move.
By June 2001, SBI had relieved over 21,000 employees through the VRS. It was reported
that another 8,000 employees were to be relieved after they attained the retirement age by
the end of 2001. Analysts felt that this would lead to a tremendous increase in the workload
on the existing workforce.
According to industry watchers, by 2010, the entire
SBI staff recruited between mid 1960 and 1980 would
retire. As a result, SBI would not have sufficient
manpower to manage over 9000 of its branches.
Another major hurdle was the Government's proposal
to scrap the Banking Service Recruitment Board
(BSRB)6 as the bank lacked expertise in recruitment
procedures.
Table II
Change in SBI's Staff Strength
31-03-01 31-03-00 %change
Officers 52,558 59,474 (11.63%)
Clerical 103,993 115,424 (9.90%)
Subordinate 53,729 58,535 (8.21%)
Total 210,280 233,433 (9.92%)
Source: www.indiainfoline.com
In the post-VRS scenario, SBI planned to merge 440 loss-making branches and announced
redeploy additional administrative manpower (resulting from the merger of loss-making
branches) to frontline banking jobs. SBI also planned to reduce its regional offices from 10
to 1 or 2 in each circle. In August 2001, it was reported that a single officer had to take
charge of 3 or 4 branches as the daily concurrent audit 7 got affected. Departments like
internal audit, concurrent audit, monitoring, inspection of borrowals had hardly any staff,
according to reports. It was reported that employees working in branches that had a high
workload went on work-to-rule agitation, blaming the VRS for their problems.
Analysts felt that SBI would have to take serious steps to reorient its HRD policy to restore
employee confidence and retain its talented personnel. SBI had many strong organizational
strengths and an excellent training system, but due to weak HR policies, it had lost its
experts to its competitors. The employees of almost all the new generation private sector
banks were former employees of SBI. The bank's well-defined promotion policy was
systematically flouted by the framers themselves and, as a result, employees with good
track records were frequently sidelined. Many analysts felt that SBI was not able to realize
the critical importance of recognizing inherent merit and rewarding the performers.
The above factors were cited as the major reasons for the success of VRS in the officer
cadres, who were reported to be demoralized and de-motivated. The arbitrariness and
insensitivity at the corporate level had dealt a severe blow to the employees of the
organization. What remained to be seen was whether SBI would be able to reorganize its
HRD policy and retain its talented personnel.
According to reports, SBI's total staff strength was expected to come down to around
2,00,000 by March 2001 from the pre-VRS level of 2,33,000 (Refer Table III). With an
average of 5000 employees retiring each year, analysts regarded VRS as an unwise move.
By June 2001, SBI had relieved over 21,000 employees through the VRS. It was reported
that another 8,000 employees were to be relieved after they attained the retirement age by
the end of 2001. Analysts felt that this would lead to a tremendous increase in the workload
on the existing workforce.

GROUP 4
CALL CENTRES
Call Centers Fare Badly
In the beginning of 1999, the teleworking industry
had been hailed as 'the opportunity' for Indian
corporates in the new millennium. In late 2000, a
NASSCOM1 study forecast that by 2008, the Indian IT
enabled services business2 was set to reach great
heights. Noted Massachusetts Institute of Technology
(MIT) scholar, Michael Dertouzos remarked that India
could boost its GDP by a trillion dollars through the IT-
enabled services sector. Call center (an integral part
of IT-enabled services) revenues were projected to
grow from Rs 24 bn in 2000 to Rs 200 bn by 2010.
During 2000-01, over a hundred call centers were
established in India ranging from 5000 sq. ft. to
100,000 sq. ft. in area involving investments of over
Rs 12 bn.
However, by early 2001, things seemed to have taken

a totally different turn. The reality of the Indian call
center experience was manifested in rows after rows
of cubicles devoid of personnel in the call centers.
There just was no business coming in.
In centers which did retain the employees, they were seen sitting idle, waiting endlessly for
the calls to come. Estimates indicated that the industry was saddled with idle capacity worth
almost $ 75-100 mn. Owners of a substantial number of such centers were on the lookout
for buyers. It was surprising that call centers were having problems in recruiting suitable
entry-level agents even with attractive salaries being offered. The human resource exodus
added to the industry's misery. Given the large number of unemployed young people in the
country, the attrition rate of over 50% (in some cases) was rather surprising.
The industry, which was supposed to generate substantial employment for the country, was
literally down in the dumps - much to the chagrin of industry experts, the Government, the
media and above all, the players involved. The future prospects of the call center business
seemed to be rather bleak indeed.
Call Center Basics

In 2001, the global call center industry was worth $
800 mn spread across around 100,000 units. It was
expected to touch the 300,000 level by 2002
employing approximately 18 mn people. Broadly
speaking, a call center was a facility handling large
volumes of inbound and outbound telephone calls,
manned by 'agents,' (the people working at the
center). In certain setups, the caller and the call
center shared costs, while in certain other cases, the
clients bore the call’s cost. The call center could be
situated anywhere in the world, irrespective of the
client company's customer base.
Call centers date back to the 1970s, when the

travel/hospitality industry in the US began to
centralize their reservation centers. With the rise of
catalog shopping and outbound telemarketing, call
centers became necessary for many industries. Each
industry had its own way of operating these centers,
with its own standards for quality, and its own
preferred technologies. The total number of people
who worked at the center at any given point of time
were referred to as 'seats.' A center could range from
a small 5-10 seat set-up to a huge set-up with 500-
2,000 seats.
The calls could be for customer service, sales, marketing or technical support in areas such
as airline/hotel reservations, banking or regarding telemarketing, market research, etc. For
instance, while a FMCG company could use the call centers for better customer relationship
management, for a biotechnology company, the task could be of verifying genetic
databases. (Refer Table I).
Call centers began as huge establishments managing large volumes of communications and
traffic. These centers were generally set up as large rooms, with workstations, interactive
voice response systems, an EPABX3, headsets hooked into a large telecom switch and one or
more supervisor stations. (Refer Table II). The center was either an independent entity, or
was linked with other centers or to a corporate data network, including mainframes,
microcomputers and LANs4.
Table I
Benefits of a Call-Center
 Enhances the customer base and business prospects;
 Offers an economical means of reaching diverse and widely distributed customer group;
 Fine-tunes offerings to specific customer groups by specialized and focussed assistance;
 Allows customers easy access to experts;
 Facilitates business round the clock and in any geographical region;
 Allows a company to reduce the overheads of brick and mortar branches.
Source: IBS Center for Management Research
Table II
Call Center Classification
 Voice call center with phones and computers.
 E-mail call center with leased lines and computers.
 Web-based call centers using internet chat facilities with customers.
 Regional call centers handling calls from local clients.
 Global call centers handling calls from across the world.
Source: IBS Center for Management Research
Call centers could either be 'captive/in-house' or in

form of an 'outsourced bureau.' Captive call centers
were typically used by various segments like
insurance, investments and securities, retail banking,
other financial services, telecommunications,
technology, utilities, manufacturing, travel and
tourism, transport, entertainment, healthcare and
education etc. Outsourcing bureaus were outfits with
prior experience in running call centers. These helped
the new players in dealing with complex labor issues,
assisted in using latest technologies, helped in
lowering the operating expenses and financial risks.
Outsourced bureau operators were utilized by
companies at various stages viz. setting up of the
center, internal infrastructure revamps, excess traffic
situations etc.
Indian Call Centers - Myths

and Realities
There were many reasons why India was considered
an attractive destination to set up call centers.
The boom in the Indian information technology sector in the mid 1990s led to the country's
IT strengths being recognized all over the world. Moreover, India had the largest English-
speaking population after the US and had a vast workforce of educated, reasonably tech-
savvy personnel. In a call center, manpower typically accounted for 55-60% of the total
costs in the US and European markets - in India, the manpower cost was approximately
one-tenth of this. While per agent cost in US worked out to approximately $ 40,000, in
India it was only $ 5,000. This was cited to be the biggest advantage India could offer to
the MNCs. Apart from these, the Government’s pro call center industry approach and a
virtual 12-hour time zone difference with the US added to India's advantages.
There were a host of players in the Indian call center industry. Apart from the pioneers
British Airways, GE and Swiss Air, HLL, BPL, Godrej Soaps, Global Tele-Systems, Wipro,
ICICI Banking Corporation, American Express, Bank of America, Citibank, ABN AMRO,
Global Trust, Deutsche Bank, Airtel, and Bharati BT were the other major players in the call-
center business. After the projections of the NASSCOM-McKinsey report were made public,
many people began thinking of entering the call center business. (Refer Table III). During
this rush to make money from the call center 'wave,' NASSCOM received queries from many
people with spare cash and space, including lorry-fleet operators, garment exporters,
leather merchants, tyre distributors and plantation owners among others.
Table III
The Indian Call-Center Milestones
GE, Swiss Air, British Airways set up captive call center
Mid 1990s
units for their global needs.
Following increasing interest in the IT-enabled services
sector, NASSCOM held the first IT-enabled services meet.
May 1999
Over 600 participant firms plan to set up medical
transcription outfits and call centers.
A NASSCOM-McKinsey report says that remote services
December 1999
could generate $ 18 billion of annual revenues by 2008.
Venture Capitalists rush in. Make huge investments in call
May 2000
centers.
More than 1,000 participants flock to the NASSCOM meet
to hear about new opportunities in remote services.
September 2000
Though the medical transcription business is not
flourishing, call centers seen as a big opportunity.
NASSCOM report, indicates that a center could be set up
with $ 1 million. Gold rush begins. Everyone, from
Quarter 4, 2000
plantation owners to lorry-fleet operators, wanted to set up
centers.
Most of the call centers are waiting for customers. New
ventures still coming up: capacity of between 25 seats and
10,000 seats per company. Small operators discover that
Quarter 1, 2001 the business is a black hole where investments just
disappear. They look for buyers, strategic partnerships and
joint ventures. Brokers and middlemen make an entry to
fix such deals.
Source: IBS Center for Management Research.
However, most of these people entered the field,

without having any idea as to what the business was
all about. Their knowledge regarding the technology
involved, the marketing aspects, client servicing
issues etc was very poor. They assumed that by
offering cheaper rates, they would be able to attract
clients easily. They did not realize that more than
easy access to capital and real estate, the field
required experience and a sound business
background. Once they decided to enter the field,
they found that most of the capital expenditure (in
form of building up the infrastructure5) occurred even
before the first client was bagged. These players
seemed to have neglected the fact that most
successful call centers were quite large and had either
some experience in the form of promoters having
worked abroad in similar ventures or previous
experience with such ventures or were subsidiaries of
foreign companies. The real trouble started when
these companies began soliciting clients. As call
centers were a new line of business in India, the lack
of track record forced the clients to go for much
detailed and prolonged studies of the Indian partners.
Many US clients insisted on a strict inspection of the facilities offered, such as work-areas,
cafeterias and even the restrooms. The clients expected to be shown detailed Service Level
Agreements (SLAs6) , which a majority of the Indian firms could not manage. Under these
circumstances, no US company was willing to risk giving business to amateurs at the cost of
losing their customers. Because of the inadequate investments in technology, lack of
processes to scale the business 7 and the lack of management capabilities, most of the
Indian players were unable to get international customers. Even for those who did manage
to rope in some clients, the business was limited. As if these problems were not enough, the
players hit another roadblock - this time in form of the high labor turnover problem.
Agent performance was the deciding factor in the success of any call center. Companies had
recognized agents as one of the most important and influential points of contact between
the business and the customer. However, it was this very set of people whom the Indian call
centers were finding extremely difficult to recruit and more importantly, retain. In 2000, the
average attrition rate in the industry was 40-45%, with about 10-15% of the staff quitting
within the first two months itself. Even though attrition rates were very high in this industry
worldwide, the same trend was not expected to emerge in India, as the unemployment
levels were much higher.
The reasons were not very hard to understand. In a eight-and-a-half hour shift, the agents
had to attend calls for seven-and-a-half hours. The work was highly stressful and
monotonous with frequent night shifts. A typical call center agent could be described as
being 'overworked, underpaid, stressed-out and thoroughly bored.' The agents were
frequently reported to develop an identity crisis because of the 'dual personality' they had to
adopt. They had to take on European/US names or abbreviate their own names and acquire
foreign accents in order to pose as 'locals.' The odd timings took a toll on their health with
many agents complaining of their biological clocks being disturbed. (Especially the ones in
night shifts). Job security was another major problem, with agents being fired frequently for
not being able to adhere to the strict accuracy standards. (Not more than one mistake per
100 computer lines.)
The industry did not offer any creative work or growth
opportunities to keep the workers motivated. The
scope for growth was very limited. For instance, in a
426-seat center, there were 400 agents, 20 team
leaders, four service delivery leaders, one head of
department and one head of business. Thus, going up
the hierarchy was almost impossible for the agents.
Analysts remarked that the fault was mainly in the
recruitment, training, and career progression policies
of the call centers. Organizations that first set up call
centers in India were able to pick and choose the best
talent available. The entry norms established at this
point were - a maximum age limit of 25 years, a
minimum qualification of a university degree, English
medium school basic education and a preference to
candidates belonging to westernized and well-off
upper middle class families. The companies hence did
not have to spend too much time and effort in training
the new recruits on the two important aspects of a
good level of spoken and written English and a good
exposure to western culture and traditions. However,
companies soon realized that people with such
backgrounds generally had much higher aspirations in
life. While they were initially excited to work in the
excellent working environment of a multinational
company for a few months, they were not willing to
make a career in the call center industry. They
generally got fed up and left within a few months
when the excitement waned.
A consistently high attrition rate affected not only a center's profits but also customer
service and satisfaction. This was because a new agent normally took a few months before
becoming as proficient as an experienced one. This meant that opportunities for providing
higher levels of customer service were lost on account of high staff turnover. 8
Future Prospects
The Indian call center majors were trying to handle the labor exodus through various
measures. Foremost amongst these was the move to employ people from social and
academic backgrounds different from the norms set earlier. Young people passing out of
English medium high schools and universities and housewives and back-to-work mothers
looking for suitable opportunities were identified as two of the biggest possible recruitment
pools for the industry. Such students with a good basic level of English could be trained
easily to improve their accents, pronunciation, grammar, spelling and diction. They could be
trained to become familiar with western culture and traditions. The housewives and back-to-
work mothers' pool could also be developed into excellent resources. This had been
successfully tried out in the US and European markets, where call centers employed a large
number of housewives and back-to-work mothers. Another solution being thought about
was to recruit people from non-metros, as people from these places were deemed to be
more likely to stay with the organization, though being more difficult to recruit and
expensive to train.
Even as the people and infrastructure problems were being tackled, a host of other issues
had cropped up, posing threats for the Indian call centers. The promise of cheap, English
speaking and technically aware labor from India was suddenly not as lucrative in the
international markets. A survey of Fortune 1,000 companies on their outsourcing concerns
showed that cost-reduction was not the most important criterion for selecting an
outsourcing partner. This did not augur well for a country banking on its cost
competitiveness. Also, China was fast emerging as a major threat to India, as it had
embarked on a massive plan to train people in English to overcome its handicap in the
language.
In February 2001, Niels Kjellerup, editor and publisher
of 'Call Center Managers Forum' came out strongly
against India being promoted as an ideal place to set
up call centers. He said:
"The English spoken by Indians is a very heavy dialect

- in fact, in face to face conversations, I found it very
difficult to understand what was said. How will this
play out over the telephone with people much less
educated that my conversation partners? The non-
existent customer service culture in India will make
training of reps mandatory and difficult, since such a
luxury as service is not part of everyday life in India.
The infrastructure is bad, no, make that antiquated:
The attempts by a major US corporation to set up a
satellite link has so far been expensive and not very
successful. Electricity infrastructure is going from bad
to worse - in fact during my stay at a 5 star hotel and
at the corporate HQ of a big MNC, we had on average
7 black-outs a day where the generators would kick in
after 2-3 seconds. The telephony system is analog
and inadequate. It took on average three attempts
just to get a line of out my hotel. The telecom market
is not deregulated, and international calls are very
expensive.
The business culture and the mix of Government intervention will be a cultural shock for
Western business people with no previous experience. Add to this a lack of a call center
industry and very few people with call center experience which makes it very hard to recruit
call center managers with a proven track record."
Despite the mounting criticisms and worries, hope still existed for the Indian call center
industry. Analysts remarked that the call center business was in the midst of a transition,
wherein only the fundamentally strong players would remain in the fray after an inevitable
'shakeout.' Unlike other industries, the shakeout in this industry was not only because of an
over supply of call center providers, but also because of the quality of supply offered. In
spite of the downturn, the call center business was considered to hold a lot of potential by
many corporates.
With the US economy facing a slowdown, the need for US companies to outsource was
expected to be even higher. The Reliance group was planning to open call centers in 10
cities across the country. Other companies including Spectramind and Global Telesystems
planned to either enter or enhance their presence in the business.
Whether the dream of call centers contributing to substantial economic growth for India
would turn into reality was something only time would reveal.

GROUP 5
NETSCAPE
"It took Microsoft and Oracle 11 years to reach the size Netscape reached in 3 years, both
in terms of revenues and the number of employees. Which is just cosmically fast growth."
- Marc Andreessen, Co-founder, Netscape.
"Netscape's relaxed work environment drives up productivity and creativity. Because there
aren't layers of management and policies to work through, Netscape can turn out products
in a month."
- Patrick O'Hare, Manager (Internal Human Resources Web Site), Netscape.
Introduction
On November 24, 1998, America Online 1 (AOL) announced the acquisition of Netscape
Communications (Netscape), a leading Internet browser company, for $10 billion in an all-
stock transaction. With this acquisition, AOL got control over Netscape's three different
businesses – Netcenter portal, Netscape browser software and a B2B e-commerce software
development division.
According to the terms of the deal, Netscape's shareholders
received a 0.45 share of AOL's common stock for each share
they owned. The stock markets reacted positively and AOL's
sharevalue rose by 5% just after the announcement. Once
shareholders and regulatory authorities approved the deal,
Netscape's CEO James Barksdale (Barksdale) 2 was supposed to
join AOL's board. Many analysts felt that this acquisition would
help AOL get an edge over Microsoft, the software market
leader, in the Web browser market. Steve Case, (Case)
Chairman and CEO of AOL, remarked, "By acquiring Netscape,
we will be able to both broaden and deepen our relationships
with business partners who need additional level of
infrastructure support, and provide more value and convenience
for the Internet consumers."
However, a certain section of analysts doubted whether AOL's management would accept
Netscape's casual and independent culture. Moreover, they were worried that this deal may
lead to a reduction in Netscape's workforce, the key strength of the company.
Introduction Contd...
A former Netscape employee commented, "People at Netscape were nervous about the
implications of AOL buying us." Allaying these fears, in an address to Netscape employees,
Case said, "Maybe you joined the company because it was a cool company. We are not
changing any of that. We want to run this as an independent culture."
In spite of assurances by AOL CEO, it was reported that people
at Netscape were asked to change the way they worked. In July
1999, Netscape employees were asked to leave if they did not
like the new management.
By late 1999, most of the key employees, who had been

associated with Netscape for many years, had left. Barksdale
left to set up his own venture capital firm, taking along with him
former CFO Peter Currie.
Marc Andreessen (Andreessen) stayed with AOL as Chief

Technology Officer till September 1999, when he left to start his
own company, Loud cloud. Mike Homer, who ran the Netcenter
portal, left the company while he was on a sabbatical.
Background Note
Netscape was co-founded by Jim Clark (Clark) and Andreessen. Clark was a Stanford
University professor turned entrepreneur.3 Andreessen was an undergraduate from the
University of Illinois, working with the National Center for Supercomputing Applications. 4
In 1993, with a fellow student, Andreessen developed the code for a graphical Web browser
and named it Mosaic. In April 1994, Clark and Andreessen founded a company, which was
named as Electric Media (See Exhibit I). The name was changed to Mosaic Communications
in May 1994. In November 1994, Mosaic Communications was renamed Netscape
Communications. In December 1994, Netscape introduced Navigator, its first commercial
version of its browser5.
By March 1995, six million copies of Navigator were in use
around the world. This was without any advertising, and with no
sales through retail outlets.
Netscape allowed users to download the software from the

Internet. By mid 1995, Navigator accounted for more than 75%
of the browser market while Mosaic share was reduced to just
5%.
In the same month, Netscape launched Navigator 1.0. During

February-March 1995, Netscape launched Navigator 1.1.
This new version could be run on Windows NT 6 and Macintosh

Power PC.7 Within three months, the beta version 8 of Navigator
1.2 for Windows 95 was launched.
At the same time, Netscape announced its plans to launch the commercial version of
Navigator 1.2 in the next August 1995. By launching new versions of browsers quickly,
Netscape set new productivity standards in the web browser market.
Numerous Netscape servers were also launched within a short period of time. Netscape
Communications Server, News Server, and Commerce Server were launched within a year.
In total, within the first 15 months of its inception, Netscape rolled out 11 new products.
Within a year of its inception, Netscape made an Initial Public Offering (IPO), which was well
received by the investing public.
In 1997, Netscape broadened its product portfolio by developing Internet content services.
In June 1997, Netscape launched its Communicator 9 and in August rolled out Netcaster. 10 In
August 1997, Netscape also announced its plans to strengthen its presence in the browser
market by forming 100 industry partnerships.
In September 1997, Netscape transformed its corporate website
into Netcenter website – a site featuring news and chat group
services.
During 1998, Netscape faced increasing competition from

Microsoft in the browser market. Netscape therefore entered
new businesses like enterprise and e-commerce software
development.
By the fourth quarter of 1998, the enterprise and e-commerce

software business accounted for 75% of Netscape's earnings.
In November 1998, Netscape was acquired by AOL, the world's

largest online services provider.
Analysts remarked that Netscape's ability to respond quickly to market requirements was
one of the main reasons for its success. The ability to introduce new versions of products in
a very short span of time had made the company stand apart from thousands of startup
dotcom companies that were set up during that period. Analysts said that Netscape's
culture, which promoted innovation and experimentation, enabled it to adapt quickly to
changing market conditions. They also said that the company's enduring principle 'Netscape
Time' (See Exhibit II) had enabled it to make so many product innovations very quickly.
Netscape promoted a casual, flexible and independent culture. Employees were not bound
by rigid schedules and policies and were free to come and go as they pleased. They were
even allowed to work from home. The company promoted an environment of equality –
everyone was encouraged to contribute his opinions. This was also evident in the company's
cubicle policy. Everyone including CEO Barksdale, worked in a cubicle. Independence and
hands-off management11 were important aspects of Netscape's culture. There was no dress
code at Netscape, so employees, were free to wear whatever they wanted.
Barksdale laid down only one condition, "You must come to
work dressed." The company promoted experimentation and did
not require employees to seek anyone's approval for trying out
new ideas.
For example, Patrick O'Hare,12 who managed Netscape's internal

human resources website, was allowed to make changes to any
page on the site, without anyone's approval.
Netscape's management reposed a high degree of trust in its

employees, which translated into empowerment and lack of
bureaucracy. Beal,13 a senior employee said, "Most organizations
lose employees because they don't give them enough
opportunities to try new things, take risks and make mistakes.
People stay here because they have space to operate." Realizing that some experiments do
fail, Netscape did not punish employees for ideas that did not work out. However, to
maintain discipline at work, employees were made accountable for their decisions. They
were also expected to give sound justifications for their actions.
Job rotation was another important feature of Netscape's culture. By doing so, the company
helped its employees learn about new roles and new projects in the company. For example,
Tim Kaiser, a software engineer, worked on four different projects in his first year of
employment. The company believed in letting its staff take up new jobs – whether it was a
new project in the same department or a new project in another department. Moreover,
related experience was not a requirement for job rotation. Netscape played a proactive role
in identifying new positions for its employees inside the company. Employees were offered a
wide range of training options and an annual tuition reimbursement of US $6,000.
This opportunity to expand their skills on the job was valued by
all employees. The company also helped employees learn about
the functioning of other departments.
There were quarterly 'all-hands' meetings in which senior

managers of different departments gave presentations on their
strategies. These efforts created a sense of community among
employees. An employee remarked, "They really try to keep us
informed so we feel like we are involved with the whole
company."
Netscape offered a wide range of on-campus services to its

employees. Apart from the standard package of health and
vision benefits (See Exhibit III), Netscape also offered a 'Total
Health and Productivity' plan.
The on-campus services program was introduced through an agreement with a San
Francisco based service provider, LesConcierges.14 Under the program, employees were able
to get some of their routine work done like dry cleaning, paying bills, getting the oil changed
in their automobiles, etc. They could also consult a dentist or even have a massage. The
program also helped employees to plan for holidays as well as order gifts. Sick children of
employees were also looked after at a child-care facility near the campus for US $10 a day.
Since employees worked for long hours, Netscape gave them paid vacations. Employees
were given a six week paid sabbatical 15 after the completion of four years of full-time
employment. Incentives were given to employees at all levels, not just senior employees.
Employees earned bonuses on the basis of individual or group performance. Senior
executives were entitled to bonuses in the range of 1-30% of their annual salaries.
There was also an annual company-wide bonus plan based on revenues per employee and
customer satisfaction figures. Employees also qualified for bonuses based on their
manager's discretion, for specific projects/assignments. Netscape developed innovative
methods of reducing employee stress and preventing them from shifting to rival companies.
The company was one of the pioneers in introducing the
'canines-in-the-cubicle' policy, which allowed employees to bring
their dogs to work. The company believed that this policy
increased productivity by reducing stress.
The company also felt that pets were good icebreakers for shy
workers, and that they forced employees to take breaks from
their work. Another element of Netscape's success was its quick
recruitment process.
The company's employees strength had increased from 2 to 330

in just 15 months between April 1994 and July 1995. The
company attracted promising student's fresh out of college by
offering them a lot of incentives including beach parties, free
clothes, signing-on bonuses and free computers.
Once they joined, to keep up morale, employees were offered stock options, which
translated into huge profits when the company performed well. Netscape launched an
aggressive recruitment campaign: it went to some of the most popular campuses like UC
Berkley, MIT, Stanford, Cornell, Michigan, and Carnegie Mellon in the US. Netscape's efforts
to build a flexible and supportive culture seemed to have motivated employees and made
them highly productive.
According to an analyst, 16 employee retention is the key to success in the IT industry.
Compared to the industry attrition rate of 30%, Netscape's attrition rate was 20%.
Netscape's management believed that more than the pay check, employees were interested
in meaningful work, independence, flexibility, and a desire to learn on the job. Tim
Garmager, principal of the Human Resources Strategies Group at Deloitte & Touche LLP in
Chicago, confirmed this belief: "There is less emphasis on pay today than ever. In today's
job market, employers need to look closely not only at the benefits they offer but at the
culture they engender."
The Setback
After the acquisition, AOL planned to integrate Netscape's web-
browser products and Netcenter portal site with its Interactive
Services Group.17 The company created a Netscape Enterprise
Group in alliance with Sun Microsystems 18 to develop software
products ranging from basic web servers and messaging
products to e-commerce applications.
However, overlapping technologies and organizational red tape

slowed down the process of integration. Within a year of the
acquisition, Netscape browser's marketshare fell from 73% to
36%. Andreessen, who had joined AOL as chief technology
officer, resigned only after six months on the job.
His departure triggered a mass exodus of software engineering talent from Netscape. Soon
after, engineers from Netscape joined Silicon Valley start-ups like Accept.com, Tellme
Networks, Apogee Venture Group and ITIXS.
Former Netscape vice president of technology Mike McCue and product manager Angus
Davis founded Tellme Networks. They brought with them John Giannandrea. As chief
technologist and principal engineer of the browser group, John Giannandrea was involved
with every Navigator release from the first beta of 1.0 in 1994 to the launch of 4.5 version
in Oct.
1998. Ramanathan Guha, one of Netscape's most senior engineers, left a $4 million salary
at AOL to join Epinions.com. He was soon joined by Lou Montulli and Aleksander Totic, two
of Netscape's six founding engineers. Other Netscape employees helped start Responsys.
Some employees joined Accept.com and others AuctionWatch. Spark PR was staffed almost
entirely by former Netscape PR employees. Market watchers were surprised and worried
about this exodus of Netscape employees. Some of them felt that the mass exodus might
have been caused by monetary considerations.
Most of the employees at Netscape had stock options. Once the
acquisition was announced, the value of those options rose
significantly. David Yoffie, a Harvard Business School professor
said, "When AOL's stock went up, the stock of most of the
creative people was worth a ... fortune."
Most of them encashed their options and left the company. But
some analysts believed that there were other serious reasons
for the exodus. Netscape employees always perceived
themselves as an aggressive team of revolutionaries who could
change the world.
Before resigning from AOL, Jamie Zawinski, the 20th person
hired at Nescape, said, "When we started this company, we
were out to change the world.
We were the ones who actually did it. When you see URLs on grocery bags, on billboards,
on the sides of trucks, at the end of movie credits just after the studio logos – that was us,
we did that. We put the Internet in the hands of normal people. We kick-started a new
communications medium. We changed the world." Another ex-employee said, "We really
believed in the vision and had a great feeling about our company."
But the merger with AOL reduced them to a small part of a big company, with slow-moving
culture. Some employees felt that AOL was more interested in the Netscape's brand name.
An ex-Netscape executive said, "AOL always turned its nose up at technology – what
Netscape was trying to do. The opportunity AOL had was to make Netscape the technology
arm of AOL.
As rich of a resource as Netscape was for technology, equally notable is at AOL the lack of
that resource. AOL had a hard time understanding how to best tap into it." They felt that
AOL had just paid lip service to Netscape's technology by naming Andreessen its Chief
Technology Officer. According to Rob Enderle, vice president of Giga Information, 19 "All
Andreessen got was a corner. All they wanted was Web presence… They got the [Netscape]
name, they just had to figure out how to get rid of the people."
AOL's corporate philosophy was also completely different from
Netscape philosophy. Yoffie explained, "...The heart and soul of
the Netscape engineers' culture was to try to change the world
through technology, not to change the world through media."
That difference made many employees feel that they were
working in the wrong place. So most of the engineers left and
Netscape was transformed from a technology to a media
company. Zawinski said, "AOL is about centralization and
control of content. Everything that is good about the Internet,
everything that differentiates it from television, is about
empowerment of the individual. I don't want to be a part of an
effort that could result in the elimination of all that." Would
Netscape have survived on its own had AOL not bought it in
1998, when the company was reeling under huge losses? (See
Exhibit IV).
The ex-employees of Netscape did not care to answer that question. They only knew that
their old company and its culture had gone forever. An analyst remarked 20, "Unfortunately,
AOL is a good technology company that doesn't know what to do with good technology. It's
sad what they did to Netscape."

GROUP 6
ICICI
The Change Leader
In May 1996, K.V. Kamath (Kamath) replaced
Narayan Vaghul (Vaghul), CEO of India's leading
financial services company Industrial Credit and
Investment Corporation of India (ICICI). Immediately
after taking charge, Kamath introduced massive
changes in the organizational structure and the
emphasis of the organization changed - from a
development bank1 mode to that of a market-driven
financial conglomerate.
Kamath's moves were prompted by his decision to

create new divisions to tap new markets and to
introduce flexibility in the organization to increase its
ability to respond to market changes. Necessitated
because of the organization's new-found aim of
becoming a financial powerhouse, the large-scale
changes caused enormous tension within the
organization. The systems within the company soon
were in a state of stress. Employees were finding the
changes unacceptable as learning new skills and
adapting to the process orientation was proving
difficult.
The changes also brought in a lot of confusion among the employees, with media reports
frequently carrying quotes from disgruntled ICICI employees. According to analysts, a large
section of employees began feeling alienated. The discontentment among employees further
increased, when Kamath formed specialist groups within ICICI like the 'structured projects'
and 'infrastructure' group.
Doubts were soon raised regarding whether Kamath had gone 'too fast too soon,' and more
importantly, whether he would be able to steer the employees and the organization through
the changes he had initiated.
Background Note
ICICI was established by the Government of India in 1955 as a public limited company to
promote industrial development in India. The major institutional shareholders were the Unit
Trust of India (UTI), the Life Insurance Corporation of India (LIC) and the General
Insurance Corporation of India (GIC) and its subsidiaries. The equity of the corporation was
supplemented by borrowings from the Government of India, the World Bank, the
Development Loan Fund (now merged with the Agency for International Development),
Kreditanstalt fur Wiederaufbau (an agency of the Government of Germany), the UK
government and the Industrial Development Bank of India (IDBI).
The basic objectives of ICICI were to:
 assist in creation, expansion and modernization of
enterprises
 encourage and promote the participation of private
capital, both internal and external
 take up the ownership of industrial investment;
and
 expand the investment markets.
Since the mid 1980s, ICICI diversified rapidly into
areas like merchant banking and retailing. In 1987,
ICICI co-promoted India's first credit rating agency,
Credit Rating and Information Services of India
Limited (CRISIL), to rate debt obligations of Indian
companies. In 1988, ICICI promoted India's first
venture capital company - Technology Development
and Information Company of India Limited (TDICI) -
to provide venture capital for indigenous technology-
oriented ventures. In the 1990s, ICICI diversified into
different forms of asset financing such as leasing,
asset credit and deferred credit, as well as financing
for non-project activities.
In 1991, ICICI and the Unit Trust of India set up India's first screen-based securities
market, the over-the-counter Exchange of India (OCTEI). In 1992 ICICI tied up with J P
Morgan of the US to form an investment banking company, ICICI Securities Limited. In line
with its vision of becoming a universal bank, ICICI restructured its business based on the
recommendations of consultants McKinsey & Co in 1998. In the late 1990s, ICICI
concentrated on building up its retail business through acquisitions and mergers. It took
over ITC Classic, Anagram Finance and merged the Shipping Credit Investment Corporation
of India (SCICI) with itself. ICICI also entered the insurance business with Prudential plc of
UK.
ICICI was reported to be one of the few Indian companies known for its quick
responsiveness to the changing circumstances. While its development bank counterpart
IDBI was reportedly not doing very well in late 2001, ICICI had major plans of expanding on
the anvil. This was expected to bring with it further challenges as well as potential change
management issues. However, the organization did not seem to much perturbed by this,
considering that it had successfully managed to handle the employee unrest following
Kamath's appointment.
Change Challenges - Part I

ICICI was a part of the club of developmental finance institutions (DFIs - ICICI, IDBI and
IFCI) who were the sole providers of long-term funds to the Indian industry. If the
requirement was large, all three pooled in the money. However, the deregulation beginning
in the early 1990s, allowed Indian corporates' to raise long-term funds abroad, putting an
end to the DFI monopoly. The government also stopped giving DFIs subsidized funds.
Eventually in 1997, the practice of consortium lending by DFIs was phased out.
It was amidst this newfound independent status that Kamath, who had been away from
ICICI for eight years working abroad 2, returned to the helm. At this point of time, ICICI had
limited expertise, with its key activity being the disbursement of eight-year loans to big
clients like Reliance Industries and Telco through its nine zonal offices. In effect, the
company had one basic product, and a customer orientation, which was largely regional in
nature.
Kamath, having seen the changes occurring in the financial sector abroad, wanted ICICI to
become a one-stop shop for financial services. He realized that in the deregulated
environment ICICI was neither a low-cost player nor was it a differentiator in terms of
customer service. The Indian commercial banks' cost of funds was much lower, and the
foreign banks were much more savvy when it came to understanding customer needs and
developing solutions. Kamath identified the main problem as the company's ignorance
regarding the nuances of lending practices in newly opened sectors like infrastructure.
The change program was initiated within the
organization, the first move being the creation of the
'infrastructure group (IIG),' 'oil & gas group (O&G),'
'planning and treasury department (PTD)' and the
'structured products group (SPG)', as the lending
practices were quite different for all of these. Kamath
picked up people from various departments, who he
was told were good, for these groups.
The approach towards creating these new skill sets,

however, led to one unintended consequence. As
these new groups took on the key tasks, a majority of
the work, along with a lot of good talent, shifted to
the corporate center. While the zonal offices continued
to do the same work - disbursing loans to corporates
in the same region - their importance within the
organization seemed to have diminished. An ex-
employee remarked, "The way to get noticed inside
ICICI after 1996 has been to attach yourself to people
who were heading these (IIG, PTD, SPG, O&G)
departments. These groups were seen as the thrust
areas and if you worked in the zones it was difficult to
be noticed."
Refuting this, Kamath remarked, "This may be said by people who did not make it. And
there will always be such people." Some of the people who did not fit in this set-up were
quick to leave the organization. However, this was just the beginning of change-resistance
at ICICI. Another change management problem surfaced as a result of ICICI's decision to
focus its operations much more sharply around its customers. In the system prevailing, if a
client had three different requirements from ICICI, 3 he had to approach the relevant
departments separately. The process was time consuming, and there was a danger that the
client would take a portion of that business elsewhere. To tackle this problem, ICICI set up
three new departments: major client group (MCG), growth client group (GCG) and personal
finance group. Now, the customer talked only to his representative in MCG or GCG. And
these representatives in turn found out which ICICI department could do the job.
Though the customers seemed to be happy about this new arrangement, people within the
organization found it unacceptable. In the major client group, a staff of about 30-40 people
handled the needs of the top 100 customers of ICICI. On the other hand, about 60 people
manned the growth client group, which looked after the needs of mid-size companies.
Obviously, the bigger clients required more diverse kinds of services. So working in MCG
offered better exposure and bigger orders. The net effect was that the MCG executive ended
up doing more business than the GCG executive. A middle-level manager at ICICI
commented, "The bosses may call it handling growth clients but the GCG manager is
actually chasing non-performing assets (NPA)4 and Board of Industrial and Financial
Restructuring (BIFR)5 cases."
Kamath was quick to deny this allegation as well, "Just because somebody is within the MCG
does not guarantee him success. And these assignments are not permanent. Today's MCG
man could easily by tomorrow's GCG person and vice-versa." Complaints against these
changes put in continued and ICICI was blamed for not putting in adequate systems in
place to develop the right people. The manner, which ICICI recognized an individual's
efforts - the feedback process - was also questioned. A manager remarked, "Last year the
bonuses varied from Rs 30,000 to Rs 250,000 depending on the performance. In many
cases the appraisal scores were same but the bonus amount was not. And we were not told
why."
With Kamath's stated objective to make ICICI provide
almost every financial service, separating the
customer service people from the product
development groups was another problem area. In the
current scheme of things, an MCG or GCG person
acted as a clients' representative inside ICICI. The
MCG or GCG person understood the client's need and
got the relevant internal skill department to develop a
solution. Unlike foreign banks, there were no
demarcations between these internal skill groups and
client service person. (Demarcation helped in
preventing an internal skills person from cannibalizing
business being developed by the client service group.)
With no such systems in place at ICICI, this distorted
the compensation packages between the competing
divisions.
While Kamath's comments in the media seemed to

dismiss many of the employee complaints, ICICI was
in fact, putting in place a host of measures to check
this unrest. One of the first initiatives was regarding
imparting new skills to existing employees. Training
programmes and seminars were conducted for around
257 officers by external agencies, covering different
areas.
In addition, in-house training programmes were conducted in Pune and Mumbai. During
1995-96, around 35 officers were nominated for overseas training programmes organized
by universities in the US and Europe. ICICI also introduced a two-year Graduates'
Management Training Programme (GMTP) for officers in the Junior Management grades.
Along with the training to the employees, management also took steps to set right the
reward system. To avoid the negative impact of profit center approach, wherein pressure to
show profits might affect standards of integrity within an organization, management
ensured that rewards were related to group performance and not individual performances.
To reward individual star performers, the method of selecting a star performer was made
transparent. This made it clear, that there would be closer relationship between
performance and reward.
However, it was reported that pressure on accountability triggered off some levels of
anxiety within ICICI which resulted in a lot of stress in human relationships. Dismissing
reports of upsetting people, Kamath said, 'much of the restructuring plan has come from the
bottom.' ICICI also reviewed the compensation structure in place. Two types of
remuneration were considered - a contract basis which would attract risk-takers and a
tenure-based compensation which would be appealing to employees who wanted security.
Kamath accepted that ICICI had been a bit slow on completing the employee feedback
process. Soon, a 360-degree appraisal system was put in place, whereby an individual was
assessed by his peers, seniors and subordinates. As a result of the above measures, the
employee unrest gradually gave way to a much more relaxed atmosphere within the
company.
Change Challenges - Part II

By 2000, ICICI had emerged as the second largest
financial institution in India with assets worth Rs 582
billion. The company had eight subsidiaries providing
various financial services and was present in almost
all the areas of financial services: medium and long
term lending, investment and commercial banking,
venture capital financing, consultancy and advisory
services, debenture trusteeship and custodial services.
ICICI had to face change resistance once again in

December 2000, when ICICI Bank was merged with
Bank of Madura (BoM)6. Though ICICI Bank was
nearly three times the size of BoM, its staff strength
was only 1,400 as against BoM's 2,500. Half of BoM's
personnel were clerks and around 350 were
subordinate staff. There were large differences in
profiles, grades, designations and salaries of
personnel in the two entities.
It was also reported that there was uneasiness among the staff of BoM as they felt that
ICICI would push up the productivity per employee, to match the levels of ICICI 7. BoM
employees feared that their positions would come in for a closer scrutiny. They were not
sure whether the rural branches would continue or not as ICICI's business was largely
urban-oriented. The apprehensions of the BoM employees seemed to be justified as the
working culture at ICICI and BoM were quite different and the emphasis of the respective
management was also different. While BoM management concentrated on the overall
profitability of the Bank, ICICI management turned all its departments into individual profit
centers and bonus for employees was given on the performance of individual profit center
rather than profits of whole organization.
ICICI not only put in place a host of measures to technologically upgrade the BoM branches
to ICICI's standards, but also paid special attention to facilitate a smooth cultural
integration. The company appointed consultants Hewitt 8 Associates to help in working out a
uniform compensation and work culture and to take care of any change management
problems.
ICICI conducted an employee behavioral pattern
study to assess the various fears and apprehensions
that employees typically went through during a
merger. (Refer Table I).
Table I
'Post-Merger' Employee Behavioral Pattern
Period Employee Behavior
Denial, fear, no
Day 1
improvement
Sadness, slight
After a month
improvement
Acceptance, significant
After a Year
improvement
Relief, liking,
After 2 Years enjoyment, business
development activities
Source: www.sibm.edu
Based on the above findings, ICICI established systems to take care of the employee
resistance with action rather than words. The 'fear of the unknown' was tackled with adept
communication and the 'fear of inability to function' was addressed by adequate training.
The company also formulated a 'HR blue print' to ensure smooth integration of the human
resources. (Refer Table II).
Table II
Managing HR during the ICICI-BoM Merger
The HR Blueprint Areas of HR Integration Focussed On
 A data base of the
entire HR structure
 Road map of
 Employee communication
career
 Cultural integration
 Determining the
 Organization structuring
blue print of HR
 Recruitment & Compensation
moves
 Performance management
 Communication of
 Training
milestones
 Employee relations
 IT Integration -
People Integration -
Business Integration.
Source:www.sibm.edu
To ensure employee participation and to decrease the resistance to the change,
management established clear communication channels throughout to avoid any kind of
wrong messages being sent across. Training programmes were conducted which
emphasized on knowledge, skill, attitude and technology to upgrade skills of the employees.
Management also worked on contingency plans and initiated direct dialogue with the
employee unions of the BoM to maintain good employee relations.
By June 2001, the process of integration between ICICI and BoM was started. ICICI
transferred around 450 BoM employees to ICICI Bank, while 300 ICICI employees were
shifted to BoM branches. Promotion schemes for BoM employees were initiated and around
800 BoM officers were found to be eligible for the promotions. By the end of the year, ICICI
seemed to have successfully handled the HR aspects of the BoM merger. According to a
news report9, "The win-win situation created by...HR initiatives have resulted in high level of
morale among all sections of the employees from the erstwhile BoM."
Even as the changes following the ICICI-BoM merger were stabilizing, ICICI announced its
merger with ICICI Bank in October 2001. The merger, to be effective from March 2002, was
expected to unleash yet another series of changes at the organization. With Kamath still
heading ICICI, analysts were hopeful that the bank would come out successfully in the task
of integrating the operations of both the entities this time as well.

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