5.1.

5.2.

5.3.

5.3.1.

5.3.1.1

5.4.

5.4.1-

5.5.

5.6.

5.7.

S.B.

Introduction

Chapter Five

Case Study

of

Voltas Limited

. The Plan for Restructuring

Human Resources Strategy

The Communication Plan

Messages from the Chairman/MD

. Industrial Relations Environment

Agreements with the Union

Case of Cooling Appliances Business Division

case of Hyderabad Unit ofVoltas Limited

Research Reports on the Downsizing Process

Outcome of the Turnaround Exercise

Annexures

A. Transcript of Interview with

erstwhile Managing Director

B. References for the Case

C. list of Key Informants

172

174

176

181

185

190

200

203

20B

5.1. Introduction

Case Study

of

Voltas Limited

Voltas was formed in 1954 as a joint venture between Tatas and Volkatt

Brothers - a swiss firm. It started as a trading Company that imported and sold a

variety of things such as industrial chemicals, plastics and precision equipment. In

the 1970's, Voltas ventured into manufacturing as well. Initially, manufacturing

chemicals, equipment for air conditioning, refrigeration, electrical and mining, it grew

its business to include manufacturing of consumer durables, capital equipment, and

anCillaries; marketing and servicing of manufactured products sourced from domestic

and international principals. In a seller's market in the 1980's Voltas could ignore

inefficiencies and price its products without having to keep costs under control. Until

the late 1990's - the time of the turnaround chronicled here - Voltas' portfolio of

businesses and products remained in a state of fairly constant flux.

In 1996-1997, Voltas experienced heavy losses for the first time in 43 years,

of Rs. 16.82 crores on a turnover of Rs. 1446.2 crores. Voltas earned the name of

'white circuls eJephant~ There were bad debts of about Rs.1500 million and the

banks declined to give the Company overdraft facilities. The Managing Director (MD),

Mr. V Munshi resigned and in April 1997, Mr. NO Khurody was appointed the

Managing Director. The figures brought into sharp focus the fundamental survival

crisis facing the Company. Management identified key issues as:

Lack of focus due to overly diversified portfoliO of business

Several divisions chronically returning poor performances

Unsustainable cost structure, especially in manufacturing

Declining performance in cooling appliances, textile machinery and

white goods, due to increased competition accompanied by general

economic downturn.

The new MD declared, "We were not a manufacturing company and yet we

had ventured into manufacturing. In my view, this was a strategic error. Within 8

months time, we would have gone to BIFR. We had our back to the wall. We were in

dire straits. We had no choice. When I told the Board that I was going in for several

closures, they said why not do it, one by one. I told them that it was better to do it

all at once. So I opened many battlefronts at the same time. So we told the Union -

We will do it with your cooperation and we will also do it without your cooperation­

only that it will take a little longer".

Explaining further, the erstwhile MD said, "For the planned changes, support

of the Chairman and the Board of Directors is necessary. Overcoming resistance to

change requires that senior managers toe the line of new thinking. If "butchering' is

needed, clean out the upper decks first Bottlenecks are always at the top of the

bottle. Many managers were not convinced about the changes proposed. I had to

move out 22 such personnel but they were removed from the scene in the typical

Tata way viz. with dignity intact. These changes at the Board and top management

levels were symbolic as the message got across to the entire organization that I was

serious about my business".

"An internal problem was also that over the years, there had grown a deep

set 'inward looking' attitude - not responsive, not proactive, and somewhat

complacent. This made the Company only partially geared to meet the requirements

of the market place. For example, until 1996, information sharing about cash/profit

across divisions and transparent systems of allocation of funds did not exist. Inter­

departmental clashes and differences of opinion over allocations were adjudicated by

the MD. A new system was now created that would allocate resources based on the

Division's contribution to corporate performance 1."

The Vice President Human Resources explained, "Voltas had grown up in the

license Raj. With economic liberalization, changes in government regulation, and a

free economy multi-national had come in and offered stiff competition. A new

bUSiness paradigm was needed. The tactics for adaptation included hiving off some

of the businesses and reduction of excess flab. Cross-functioning teams were needed

and manning needs had to be identified afresh."

The erstwhile MD put it as, "We identified unused assets held by the

Company and started ''debagging the businesses', which meant that without

disturbing the operations, we would identify what baggage (unused assets) could be

removed and monetized. In this way, the true values of the business would emerge

and the residue could be monetized to create extraordinary income to meet

extraordinary expenditure of closure and VRS".

The Company also faced a substantial loss of market share in its businesses

including its room ACs. "The losses reflected Voltas' failure to adequately address the

challenge of the new liberalized economy, including the demands of competition

from very strong MNC entrants, and the dangers of appearing 'old fashioned~

'Perform or Perish'was the imperative, and Voltas took up the task on a war footing.

Far from succumbing to the shock of its hefty losses, Voltas resolved to not just

recover, but turn itself around into one of the most profitable organizations in the

Tata Group. The battle cry of 'Perform or Perish'was taken up with the entire focus

on performance, and the possibility of perishing was not even entertained J."

5.2. The Plan for Restructuring

With liberalization of the economy, the new scenario was one of greater

competition, global connectivity and fair play of market forces. The new environment

held both threats and opportunities for Voltas. International collaborations and Joint

Ventures led to technical upgradation and increased international understanding and

im~roved business processes. On the other hand, there was competition with

established international brands with superior products and 'deep pockets' - the

ability and willingness to make sustained investments in order to turn the market

tides in their favour. There was also the threat that Voltas' current principals would

opt to set up independent bases in India, negating earlier understandings and

agreements with Voltas.

In 1996, Voltas had 9 manufacturing units and 16 major foreign technical

collaborations. At the end of FY 1996, Voltas had a total strength of 10, 711 of which

disproportionately large numberS were in Hyderabad and Thane. The Voltas Allwyn

Plant at Hyderabad illustrated the dangers of Voltas' strategy over the years of

integrating manufacture vertically. Tending to manufacture all the components

needed made the Company ineffective and inflexible in meeting competition and

controlling costs. The Thane unit was also a chronic case of high costs and poor

productivity. Employment conditions were welfare oriented with liberal dearness

allowance, double linkages to price indices, company managed pick up facilities, and

subsidized food at 20 paise per plate. (1)

Over the next few years, it went through a phased and structured exercise

deSigned to turn the Company around from "the edge of the precipice, onto a new

path of sustainable growth 1."

The erstwhile MD, Mr.Khurody decided that Voltas should withdraw from all

businesses other than its core areas which were air-conditioning, engineering

products and services, water management and trading in chemicals. The

refrigeration business was sold to Electrolux "and the Chemical plant near Hyderabad

to Rallis. Sales of these plants led to transfer of the employees also to new owners.

Some subsidiary businesses were also closed down.

Among the measures taken were restructuring and downsizing; sale of non

productive assets; workforce rationalization including VRS; disinvestment from non­

performing businesses and subsidiaries; focus on core competencies; increase

production capacity and productivity; increased customer base and market share;

process improvement; strong after sales service; reduced time for product delivery;

contract manufacturing for major national/international brands and new product

launches 1.

Additionally, the Company would increase strategic planning focus at the

DiVisional level; terminate non-performing partnerships, tie-ups, agreements;

sweeping cost reduction measures; leasing and sale of spare lands, buildings and

other assets; e-commerce and other technological aids to improve performance;

rigorous performance appraisals leading to a performance based culture and reduced

investments in manufacturing . "Each of these was a call to arm~ occasioning a

systematic change in both external focus and internal resources and processes 1".

5.3. Human Resources Strategy

"The turnaround required sharpening of human resources, inducing

continuous learning and enhanced training efforts, along with resolving industrial

disputes that used to affect performance. Voltas had split its Human Resources

Department into two divisions in the late 1990s.The first Division, acted as a think

tank for people related policies and processes and managed corporate human

resources and industrial relations. The second division handled issues of interest to

the Company's unionized employees at the Divisions and locations. Voltas had three

business Divisions and nine locations [".

The erstwhile MD observed, "The managers were not used to confrontation

and the management also never backed managers who adopted a confrontationist

attitude towards employees. 50 managers were meek. The Union had a history of

fighting the management and had often won their demands. It was a communist

ideology that they followed. Because of weak managers and leadership it was always

the· tail wagging the dog. So, one of my first steps was to strengthen the

management".

According to Vice President, Human Resources, "There was a need to instill

more confidence in managers and boost their morale. They were meek because the

top management would not back them up if they sought confrontation. This had

reSUlted in the Union and employees dictating terms on the shop floor. Workers are

always more intelligent, more unionized and more team oriented than managers. In

fact, it was the opposite in the management. Even communication at the managerial

level is inconsistent because of personal differences whereas in workers

communication is better. We had to educate managers on their legal rights and how

to be assertive while dealing with workers. We taught managers to first act, then

decide and justify. The idea was to make them enforce discipline amongst the

employees".

"The Union had to be tamed and governance tightened. Enforcement of

discipline required that employees follow rules strictly. Chronic absenteeism,

disobedience and refusal to work or move to other sections would now invite

disciplinary action. Exemplary dismissals were done to send out the message that the

management was serious. Some redundant workers would be separated and seated

at corners since they had no work to do but were given full wages. A culture of

performance was instilled wherein if workers did not meet targets, their wages were

slashed accordingly. Those who were not performing began to fear that they might

lose their jobs. Another strategy was to let redundant workers, who did not take

VRS, stay at home and be paid their full salary. The Union went to Court on their

behalf pleading that it was embarrassing for employees to stay at home and they

wanted the Company to allow them inside the work premises. The Company argued

that there was no work for them; letting them in would merely add to the cost of

providing transport, food and maintaining overheads without their contributing

anything to the Company. The Court upheld the Company' stance", stated the Vice

President, Human Resources.

Downsizing workforce numbers was an important element of the human

resource strategy. Voltas reduced its investment in manufacturing by changing its

focus to out-sourcing and assembly based operations. By hiving off consumer

durables and chemicals, the total staff strength was brought down from 10,200 in

1997 to 8700 in 1999. Further reductions were achieved by coordination and

reorganization of functions, such as integration of commercial and financial functions

of each division at each location .

. In the Annual report for 1998-99, the Board of Directors reported that

"Continuous dialogues with the Unions were done, while keeping all doors open,

delivering firm messages on what is expected by way of reduced holidays, canteen

and transport subsidies, work flexibility and lean numbers. The management is

determined to eliminate all costs that do not bring any value to the Company's

businesses ... The company introduced a VRS on 23m April 1999 and achieved a

reduction of 500 people at a total cost of Rs. 193 million ...... The Directors hoped

that the Union will appreciate the Company's efforts to make Voltas lean without

which it cannot match competitors 19."

The first VRS of 23 April 1999 had drawn a lukewarm response and the Union

went to the Industrial Court complaining that the VRS violated an earlier agreement

with the Union that for every four workers leaving, at least three new appOintments

would be made. On May 5, 1999 the VRS was stayed by the Court. However, the

High Court rejected the Union's plea and the Company re-notified the VRS on

November 15, 1999~ The Union continued to discourage workers from accepting

VRS.

In the Annual Report of 1999-2000, the Board of Directors reported that

"efforts continue to correct the overstaffing of many of Company's businesses and

activities. During the year, the headcount dropped by 3001 numbers of which 1290

people opted for VRS for permanent General Staff and 1436 separated on account of

divestment of white goods business. The rest were on account of natural attrition,

which were not replaced both at managerial and workman levels ....... The Company

has' announced a fresh early Separation Scheme by which 75% of last drawn salary

is paid as pension to surplus workmen upto normal date of retirement, or for 10

years whichever is earlier. Industrial Relations remained relatively harmonious, taking

into account the expected oPPosition expressed by the Unions to the cost of

reduction and downsizing activities being conducted throughout the year. .. The

Directors support the Management's efforts to gain cash out of all surplus and under­

utilized assets so that the assets of the Company are sweated ful/y20/~

Early Separation Scheme 2000 or compassionate Scheme was introduced to

reduce its employee base. Under the scheme, the Company helped small groups of

workers to set up an enterprise, offered them technical know-how, initial work and

engineering equipments. Certain HR initiatives were intensified, such as career and

succession planning, identification and development of high potential staff, reward·

and recognition methodologies and knowledge management. Workshops on

innovation were conducted to inculcate innovative culture. Employee satisfaction

surveys were launched to identify development needs.

In the Annual Report of 2000 - 2001, the Board of Directors stated that

despite the downsizing under the VRS introduced during the year, the Company still

has excessive manpower and attempts are being made to bring the numbers further

down towards which end the Management and Unions are in constant

dialogue ....... The number of employees stands reduced from 5807 to 5136 as on 31

March 200121.

Talking of Outlook, Opportunities and Threats in their report of 2000-2001,

the Board of Directors stated, "A major plank in this drive towards service excellence

and margins is higher and better productivity of operations. Regrettably, in this

process select categories of manpower become redundant. Unless this manpower

exits from our cost structure, and the process is a continuous one, the Company will

not be able to afford the IT and technical skills needed to wire services right across

our business horizons. A fair but quickly implementable exit and closure policy is a

must if old engineering companies like ours are to make headway in the new

unfold ing economy 21."

5.3.1. The Communication Plan

Management faced a challenge in convincing people about the need to

change. Agitation activities like non-cooperation, stoppage of overtime work,

selective work to rule and periodic strikes constrained the workflow and led to

deteriorating working conditions. There was constant tension and even danger 1. The

Vice President, Human Resources added," Convincing own management was also a

challenge. They would take the excuse of Voltas culture. Turnaround of mindsetwas

also to be achieved".

The erstwhile MD recalled, "My talks used to focus on the here and now - the

current situation and the not too distant future for the Company. The managers were

regaining their vitality and a sense of pride in Voltas was redeveloped. They were

convinced that we were going to fight a fair and just war and we restored pride in

the managers and strengthened them to face the Union. When McKinsey did a study

for the Tata Group, they had listed Voltas in the Non-Core Ust of Companies. I used

to show this to the Union telling them that we might get sold off and who knows

what the new owners will be like. They would not believe it but I still used it as an

argument to play on their fears".

Speaking about how communication with employees was done, the Vice

PreSident, Human Resources explained, "We felt that the word of mouth and

informal mediums of communication are more important. 80% of our communication

was verbal. At each location, we appointed personnel for driving the change and

they were briefed. Workers believe their own peers and leaders more than they do

structured formal communication which is always doubted. So, our strategy was to

use opinion leaders and allow them to spread the message. Communication through

opinion leaders was the fastest. Structured meetings never drive home the message

as fast. Communication should always be in receiver's language since communication

is !lot complete unless received and understood. Informal means are thus better. Our

communication theme was 'We are not against employees. Outside forces have

forced us' ".

The Vice President, Human Resources declared, "A VR5 will not be successful

unless it is sold well to the target and the surplus workers come forward willingly to

take it. If they feel that their jobs are safe and that the Company will go on paying

them their salaries indefinitely, they will not come forward to take early retirement.

This is what happened with our first VRS".

A deliberate communication exercise was undertaken in which managers

discussed with employees and union leaders how the liberalization and competition

were forcing their hands to reduce employee numbers; how employee cost was

making their products expensive; how higher product prices would push the

customers away and how this would lead to the closure of Voltas. The survival of

Voltas was at stake. The managers would add that being part of the Tata Group, the

Company was being'considerate and generous. In contrast many other Companies

had closed down and left workers in the lurch. The message was clear. They should

take advantage of the VRS and leave. There was no choice 25. For rehabilitation,

extensive finanCial counseling was provided and in some cases the employees were

offered dealership ofVoltas products.

5.3.1.1. Messages from the Chairman/MD. It was found that the

Chairman or the MD did not feel it necessary to communicate personal messages

periodically to the employees through their internal communication magazine during

the period of restructuring. According to the Chief of Corporate Communication,

publishing such messages was not the practice at Voltas.The internal magazine laid

more emphasis on giving voice and visibility to the employees rather than the CEO,

according to him. However, the erstwhile MD once did request the Union to publish

his message in the Union's magaZine, Voltas Worker, to which the Union responded

with disbelief.

5.4. Industrial Relations Environment

While the Voltas Employees Union was founded in July 1947, the All India

Voltas Employees Federation was formed in October 1959 and grew to include 7000

employees. The philosophy of the Federation has always been "One for All and All for

One'~ The Union is independent of any political affiliation. Through its 60 years of

existence, it has had bitter struggles with the management on contentious issues. In

1969 it resisted Stockist and Dealership Issues; In 1973, it opposed the introduction

of Systems and Computerization; in 1980, it insisted on Double Linked Variable

Dearness Allowance. These three struggles deteriorated the relations between Union

and Management to a great extent 4. From the year 1999, Voltas wanted to downsize

the unionized category of workers. "Management adopted all the anti-worker means

to terrorize the workforce 4". A major upheaval in the history of the Union took place

in October 2003, wherein large numbers of Union members including its leaders

accepted VRS.

The slogan adopted by the Union is "Work with All Your Might and Fight for

Your Rights': "The Voltas Employees Union can fight any onslaught from whatever

quarters to defend the rights of workers 4."

A circular of the Voltas and Volkart Employee's Union dated 20 Dec 1995

issLled subsequent to a Dearness Allowance Settlement reveals the management -

union relationship that existed prior to the downsizing under study. The Dearness

Allowance issue had been settled after six months of struggle and continuous

negotiations. Signed by the President and General Secretary of the Union it said, "

.. it is our firm belief that the agitation and consequent bitterness could have been

avoided with the timely response from Management which could have, added more

grace to the settlement. Unfortunately that was not to be. Hope, at least in future

the Management will amend themselves in the interest of Company and

all .......... Company:, future which is intrinsically connected to our future ... The

Managing Committee emphatically feels that extending our cooperation is necessary

and this is time for showing our utility and cooperation for successful running of the

COlnpany .... Need to beat competitors and prove our mettle. .... havoc created by new

economic environment .... future dangers .. .let us rise to the occasion and let not

anybody point fingers of accusation towards employees."

The workmen are represented by an internal union viz. Voltas Employees

Union affiliated to All India Voltas Employees Federation. Voltas has always nurtured

an internal union and tried its best to maintain industrial peace and an atmosphere

of cordiality and harmony in the organization. "However, the Management regrets to

state that that the Union instead of responding positively to the healthy approach of

the Company, has all along adopted a rigid approach and negative attitude and

constantly stalled every effort of the Company to be cost effective and competitive in

the business. This attitude has caused irreparable damage to the financial viability

and competitive capability of the undertaking 1B." Issues opposed by Union were as

follows:

(a) Employment of contract labour in non-core areas like canteen, security and

house-keeping without harming interests of employees working in these

areas.

(b) Computerized attendance system.

(c) VRS even though Company had offered 45 days wages for each completed

year of service. And even though several hundreds of them were willing to

accept the same and indeed accepted.

(d) Discontinuation of non vegetarian dish and sweet dish in canteens to

contain rising costs.

(e) Shift of offices from one location to another in same town/city to achieve

internal productivity and efficiency.

(f) Resorting to strikes frequently for unjust reasons.

:(g) Rationalization of working hours, holidays, leave with wages, since undr

existing rules, am employee works only 42.5 hours(not 48 hours), 5 Days (

not 6 days) a week and enjoys as many as 182 days of paid absences on

account of paid leave, paid holidays and weekly offs. In comparable

establishments in the region, the number of paid absences is only 107 days

in a year.

(h) Reduction In canteen and transport subsidies in view of constantly

increasing dearness allowance paid to workmen and weakened financial

capability of the company.

(i) Reduction in high dearness allowance neutralization rate to achieve cost

savings and competitiveness.

The Management claimed that, "Whereas our competitors did not suffer from

any of these disadvantages, we felt crippled by not being able to improve our

systems to fight the competitive markets. The result was increased manufacturing

costs leading to negligible margins on returns 18."

"Taking advantages of all the age-old clauses in the settlements entered into

during seventies and eighties the Unionl Federation stalled all the above

improvements proposed by the management through various litigations. Thus the

dedicated attempts of the Management to make the organization ..... .Iean, efficient

and economical to face the challenge of fferce competition in the market were

destroyed by the Union/Federation 18."

According to the Secretary of the Voltas Employee Federation, "Whenever

there is a decline in Company's performance, they get rid of people .... We never

negotiate with Management on VRS. In fact, we educate all workers on negative

impact of VRS. Even then individuals are at liberty to accept. We as a Union cannot

propound VRS as it cuts at our vety strength Ef our numbers get reduced. We cannot

be the ,wood in the axe that cuts the tree itseff.

"We cannot stop employees from taking VRS. As per old agreement, the

management is supposed to recruit 75 % for every downsizing. So if 4 persons

leave, then 3 must be hired as per the agreement", the Secretary added. To this

researcher's question, that does not the 4: 3 agreement imply an implicit agreement

of the Union for 25% downsizing, the Union Secretary had no answer. When asked

as to how the Union benefited by ensuring recruitment of 75% of those numbers

downsized, the Secretary stated that it was part of Corporate Social Responsibility of

the Company to generate employment. This issue is still pending in the Court as the

Company does not comply with the agreement. However, the Secretary of the

Federation as well as of the Voltas Employees Union, Mumbai agreed with the

researcher that, "Practically, we know that the 4:3 rule cannot work but we are

ready to renegotiate. Legally, the Company is in violation of that rule and open to

criminal prosecution."

5.4.1. Agreements with the Union

An examination of the several settlements signed in the past between the

Union and Management revealed the following clauses that related to downsizing.

(a) The Memorandum of Settlement dated 25 June 1973 had stated that" The

Management assures its employees that as a direct or indkect result of the

use or extension of Electronic Data Processing in the Compan~ there will be

no retrenchment, redundancy or reduction of employment in any

Division/Department/Establishment of the Compan~ and the remuneration of

the employees will be protected. The future prospects of the employees will

not be adversely affected ............ .if adverse consequences ( on employment

prospects) cannot be eliminate~ then the specific EDP application from which

the adverse consequence arises will be eliminated 2. "

(b) A settlement of 21 January, 1987 was an extension of Electronic Data

ProceSSing settlement reached on 25 June 1973. It said that "the Company

will endeavor to fill in all vacancies of the unionized staff caused due to

separations such as retirements, resignations, terminations, promotions to

non-unionized category and death while in service. However, the Company

will fill in at least three separations out of evety four including vacancies

caused by death while in service without delay. Against vacancies caused by

death of employees while in service, the employable next of kin will be

employed in terms ofa scheme to be jOintly worked out, within 2

months ......... The Management assures that there will be no efforts to curtail

employment.. ............ As a direct or indirect result of this settlement no Branch

or Office will be closed nor will there be any lay-off 2,"

(c) Guidelines on Contract Labour were prepared jointly by the Union and

Management and in the agreement dated 06 April 1984, the Federation

demanded abolition of Contract labour. The Management admitted to have

given a commitment earlier about not employing contract labour inside the

establishment, but all business needs could not be met by regular employees.

The Management agreed in the settlement that there will be no

retrenchment, reduction of employment or redundancy of permanent

employees due to engagement of contractors.

The Union pressed the conditions of the agreements as the Company tried to

restructure and adapt to the changing business environment.

The Vice PreSident, Human Resources stated, "We tried convincing the Union

on the necessity of reducing manpower. Their argument was always founded on

precedence leading to practice and therefore it is a right. We challenged these

arguments on ground of non-feasibility under the changed business scenario. We

were never going back. We knew our ultimate destination. Justice gets delayed but

attained. Thereafter, the main medium of communication between the management

and Union became the Courts".

Under the Industrial Disputes Act, 1947, any industrial establishment

employing more than 100 workmen, requires permission for retrenchment or layoff

through an application to Commissioner of Labor of the State. Such an authority is

conferred with the power to hear the objections of the Unions of workmen and pass

appropriate orders. To appeal against such an order, reference can be sought to an

Industrial Tribunal through the Government.

What follows are the details of the cases taken up by the Company to

retrench and layoff employees at some of its manufacturing facilities.

5.5. Case of Cooling Appliances Business Division (CABO), Thane

Voltas has several establishments across the country including an industrial

establishment called Main Plant at Thane. Cooling Appliances Business Division at

Main Plant was one of the units producing Water Coolers, Room Air Conditioners,

Split Air Conditioners and 6A Compressors.

An application for closure of Cooling Appliances Business Division at Main

Plant, Thane of Voltas Limited was made to the Labour Commissioner, Mumbai on 08

October 2001. 164 workmen were to be affected by the closure. Out of these, the

R&D section employed 22 workmen. The technology used in compressors was a 40

year old technology and so compressors were outsourced at 60% of in house

manufacturing cost with 8% less energy consumption and 15% lesser noise levels.

The undertaking was making losses constantly during the last five years and

cumulative losses from 1996-97 till September 2001 amounted to Rs. 36.92 crores.

The wage cost as a percentage of total cost of production ranged from 17.17% to

22,96% during 1998-1999 to 2000-2001. In 2001-2002 it was 65.35% against the

manufacturing industry norm of 10-12%.

The undertaking had to also accept orders at uneconomical prices to maintain its

struggle for survival. While the all-India market for air conditioners had grown at a

compound rate of 20% per annum during the years 1999-2000 and 2000-2001, the

undertaking was not able to encash on the opportunity due to poor productivity of

workmen; high wage costs and high costs of inputs due to statutory levies.

Set up in 1964, CABD catered to growing market needs. During eighties the

emphasiS was on indigenization of the required components. Since ancillary

industries capable of manufacturing the components of desired quality standards had

not been developed, a number of components had to be produced in house. Any air

conditioning equipment needs a compressor. 6A compressors were produced on a

large scale and this required a large workforce. For 25 years the compressor shop

was run by 173 workmen. Since economy was protected and there was not much

competition, the undertaking had a good going, despite large work force, high cost

of manufacturing and old technology.

However, following factors prevailing in the economy had fatal impact on the

viability of the operations of the undertaking:-

(a) Economic liberalization and globalization.

(b) Entry of several national and multi-national corporates into the air

conditioning business.

(c) Fierce competition and import liberalization.

(d) Market share capturing strategies through price cutting.

(e) Slow down in the economy and sluggish demand due to several

competitors.

(f) High cost of manufacturing and resultant uncompetitive pricing of the

products of the undertaking.

(g) Technological obsolescence of the undertaking.

(h) Buying out components from outside to save costs; maintenance costs of

manufacturing lines and inventory cost. This arrangement did help the

undertaking to continue to breathe life for some more time 18.

(i) Low productivity of labour and

(j) Totally negative attitude of the union/federation.

The undertaking had reduced the ~trength of managerial and supervisory

staff by 29 and affected a savings of Rs. 75 lakhs per annum. In order to keep the

siZE: of the manpower in proportion to the shrinking available work, the undertaking

had offered VRS and Early Separation Scheme to the workmen. A total of 131

employees accepted the VRS in 1999; only eleven accepted Early Separation Scheme

in 2000 and seventy-two accepted the VRS in 2000-20001. A total of 214 had

separated so far.

"It is regretted. that even after offering separation schemes three times

during last two years and five months with substantial benefits to the 164 workmen

who are going to be affected by this closure, they refused to accept the schemes and

continued to sit idle either from November 2000 or January 2001 on the shop floor,

claiming and getting wages without doing any work on the shop floors 18."

Dialogues for increaSing productivity were constantly held between the senior

management and the Union between 1996 and 2000. "Though the Union leaders

participated in these negotiations and dialogues, unfortunately there was total

absence of any response from them to improve worker productivity or cost cutting

measures 18."

Poor productivity of workmen was eVident in production figures. Workmen

were operating at 30-35% efficiency and had an implicit understanding across the

whole shop that no individual workman would give productivity beyond his daily

quota. As a result the workmen were working or adding value only for 2.5 hours to

3.5 hours in an 8 hour shift. Dedicated and loyal workers. would be under severe

Union pressure if they broke the quota system and produced more. Any move to

increase productivity was resisted to by employees. Poor productivity led to higher

cost of manufacturing, less competitive product pricing and resultant low margins

leading to losses. These were the constant sufferings the undertaking was inflicted

with and therefore has to face now the ultimate result of closure lB.

As a result of all these factors, the undertaking had suffered losses year after

year rendering the plant totally unviable. 164 employees of CABD were being paid all

wages and allowances without doing any work in absence of orders since January

2001. This continues to be a heavy cast to the Company lB.

Against the total turnover of Rs.984.28 crores, Rs. 786.39 crares, Rs. 853.72

crares and Rs. 940.66 (rores during the finandal years 1998-1999,1999-2000, 2000-

2001 and 2001-2002 respectively, the Company made profit after tax of Rs.12.79

crores,Rs.5.50 crores,Rs.5.58 crores and Rs.16.83 crores,which works out to

1.30%,0.70%,0.65% and 1.79% during those years. The Company was "struggling

hard to survive without earning any just profit despite its countrywide operations in

manufacturing, sales and services 5".

"The undertaking deserves to be closed down forthwith so that it ceases to

be a huge drain on the precious resources of Voltas Limited. If the undertaking is not

allowed to be closed, it will endanger the very survival of the Company," stated the

Company in its application 18."

The Company contended that it was in the interest of all stakeholders that

the undertaking be dosed down. Shareholders could get higher dividend than the

12% that they have been getting these past three years; dealers would not suffer

from low margins; and suppliers would stop not getting payments in time and losing

margins.

The financial position of the undertaking has deteriorated to a point of no

return because of cumulative losses, stoppage of production activity and absence of

any sales activity.

"The Management has taken this unfortunate decision with great pain as

there is no other alternative left with the managemeneB."

On 20 Dec 2001 Cooling Appliances Business Division (CABO), Thane, was

granted permission to be closed by the Labour Commissioner and on 02 March 2002

by the Industrial Triblmal, Maharashtra. 164 employees were affected by this

closure.

However, the decision of the Industrial Tribunal was set aside by a single

judge of the Bombay High Court. The management approached the Division Bench

by way of an appeal. While the appeal was pending, the Union and the Management

entered into a negotiated settlement. The settlement provided for voluntary

acceptance of retirement by the workmen and all accepted the benefits provided to

them.

The Vice President, Human Resources explained, "The partial closure of the

Thane Plant was a unique case. We put across our case on a proper legal basis. We

compared with the competition and convinced the Labour Commissioner".

On a similar eConomic argument to protect the survival of the Company as a

whole, on 07 Oct 2002, an Application se€king permission for retrenchment of

workers in the Industrial Canteen at the Chinchpokli plant in Mumbai was also made

to the Labour CommiSSioner, Mumbai. The Voltas Employees Union had earlier

challenged the upward revision of canteen prices in the Industrial Court on the

ground that it was an unfair labor practice and that canteen subsidy had become a

service condition which could not be changed without the consent of the Union. The

Bombay High Court had allowed the revision and criticized the Union for withholding

its consent unreasonably. A special Non-Veg Thali would now cost Rs. 22.40 and a

Veg Thali for Rs. 15.20; Consequent to the revision in prices in September 2001, a

majority of workers stopped eating in the canteen. As quantum of work in canteen

had reduced to about 43%, 18 workers were identified as surplus and were to be

retrenched. The workers had been offered an attractive VRS three times over the last

three years but they had refused and thus the application for retrenchment.

During 2001-2002, 525 employees opted for VRS, which with natural

attritions, brought down the number of employees from 5136 to 4329 as on 31

March 2002 7. During 2002-2003, 204 employees opted for VRS. This coupled with

retrenchments and natural attritions brought down the total manpower to 3935 as

on 31 March 2003. The Company still had excess manpower at Thane main plant and

Chinchpokli establishment, a situation that needed correction to ensure viability of

these two plants 8.

5.6. Case of Hyderabad Unit of Voltas limited

The Hyderabad Unit was taken over by Voltas under the scheme framed by

the Board for Industrial and Financial Reconstruction, from the State Government of

Andhra Pradesh in April 1993. It was carved out of erstwhile Hyderabad Allwyn

Limited, a financially sick State Government undertaking. It was trifurcated into 3

companies viz. Auto Division, Refrigerators Division and Watch factory. Voltas had

acquired the refrigeration and steel furniture unit of Allwyri, Hyderabad, motivated by

the'resultant ready access to valuable land, so as to meet emerging demands rapidly

without the difficulties of Greenfield projects. There were also attractive projections

of sales and profits in 'white goods' as further icing on the cake. The acquisition

effectively doubled Voltas' refrigerator manufacturing capacity. There were generous

tax benefits, waiver of penalties, interest and liquidation damages, and even a

waiver of the minimum demand charges levied by the State Electricity Board. It was

expected that many of Voltas-Allwyn's ailments would be cured, and the refrigerator,

gas cylinder and furniture units would break even in 1996 and start earning profits in

1997 I,

The estimated cost breakeven point could not be reached in 1996-97 as

Voltas' Allwyn acquisition had losses amounting to Rs, 90 crores prior to the

acquisition. Voltas' investment of Rs.60-70 crores in Allwyn was proving to be a

decisive error. This was largely because the Andhra Pradesh State Government had

not been able to meet certain commitments made at the time of handover. A sudden

glut in the refrigerator industry, accompanied by a general market downturn of

negative 8% growth, also affected Allwyn's performance, which suffered due to

inadequate working capital as well as being forced into non-competitive product

pricing. Other problems were the under utilization of capacities in a business driven

by volumes, as well as high cost of manufacturing and a large workforce.

The other two companies, Auto Division and Watch factory were closed down

in due course of time. The Refrigeration plant continued to make losses since the

takeover and non-viable products were discontinued and surplus workmen had been

separated through VRS. In April 1999, two other units of this plant were hived off to

Electrolux Kelvinator Limited along with transfer of 1445 employees to Electrolux

under the same terms and conditions. However, Electrolux declined to take over this

particular unit due to its excessive manpower and obsolete equipment, Voltas

decided to run this plant despite the fact that the plant was non-viable.

In 2000, Voltas invested Rs. 15 crores in modernization of the plant. The

company did make a meager profit in 2002-03. However, large orders for

refrigeration equipment received from LG and Samsung were withdrawn by them as

they set up their own manufacturing units. This led to a serious situation for the

Company. The survival of the unit was threatened 6. There was drastic reduction in

utilized capacity and increase in vastly idle capacity.

The company had mooted a VRS in December 2002. Only 114 workmen out

of 937 workmen opted for the scheme. Despite this 450 surplus workmen remained.

Opportunities for alternative employment in another business division of Voltas were

offered to them but they did not show any interest. The Union was requested to

cooperate for retrenchment of surplus workers or persuade them to accept VRS. The

Union did not respond.

In 2004, there were 823 workmen, 83 supervisors and 121 management staff

employed at Hyderabad unit. The workmen were represented by 7 registered trade

unions. The representative Union is determined through elections organized by the

State Labour Department once in two years. In the elections held in Nov 2003, the

Allwyn Voltas Employees Union had been declared as the sole bargaining agent

representing the workmen in the Hyderabad unit.

In 2004, workmen were asked to remain at home and were paid full salaries

as there was no work for them. 339 workmen remained at home in the month of

August; 235 remained at home in October and 230 remained at home in November

2004. The "survivability or viability of the Plant was in grave danger6".

On 02 November 2004, every surplus employee was served a notice of

retrenchment signed by the Vice President Operations. It informed the employees

the gravity of the business context in which the Plant was and which had led to

accumulate losses of Rs. 165 crores. "The Company is left with no other option but

to propose retrenchment of 450 surplus workmen to protect the viability of the.

Plant, "it said. Retrenchment compensation and other statutory dues were promised

to be paid.

On 07 Nov 2004, an application seeking permission for retrenchment of

surplus workmen from the Hyderabad Unit of Voltas Limited was made to the

Labour Commissioner, Government of Andhra Pradesh. This unit was located at

Sanathnagar, Hyderabad and produced refrigerators, freezers and coolers. 450

workmen were proposed to be retrenched out of a total of 823. During the period

from 1993-94 to 1999-2000, the unit made losses consistently from year to year

accumulating a total loss of Rs. 143.84 crores.

The globalization and liberalization of the Indian economy had hit the

Hyderabad unit and destabilized it. The reasons were 6;

(I) High labor cost. The average employee cost was Rs. 13250/­

per month. In comparison, LG and Samsung using contract

labour to a large extent did not pay more than Rs. 4500/-per

month.

(ii) Low level of Productivity. This was 450 refrigerators per shift

whereas LG and Samsung produced 1000 refrigerators per

shift. This was in spite of using same technology. However,

average age being 45 years impacted productivity.

(iii) Lower labor cost led to lower pricing by competitors.

(iv) Economies of scale and Money Power were in favor of

Multinationals.

(v) Basket of Appliances produced by Multi -nationals.

(vi) Enormous expenditure on advertising by Multi-nationals.

(vii) Drop in net realizations as prices fell 5% per annum year to

year.

The company prayed before the Labour Commissioner that permission to

retrench 450 workers be granted since the plant was bound to succumb to total and

permanent closure. Retrenchment was necessary "to ensure survival of the plant and

thereby protecting the jobs of the remaining employees 6".

On 26 November 2004, a violent incident occurred in the Plant. In a letter16

dated 02 Dec 2004 addressed to the Union, the Management outlined the efforts

that it had been making in resolving the VRS issue. Terming the expectations of

employees as sky high and impossible to meet, the Company had no option other

than apply for retrenchment. The management stated how it had delayed the

application for retrenchment to allow more time to discuss a settlement with the

Union. Even the bonus demand of the employees in spite of losses was agreed to by

the management and 17% bonus was paid. The management blamed the Union for

not communicating to the rank and file on the shop floor, the management's

intention to retrench if VRS issue could not be settled 16. On 26 November, the Union

leaders were informed about the application for retrenchment and when they refused

to accept delivery of the document, the same was posted on the notice board. Soon,

about 400 workmen gathered around the notice board area shouting slogans. Many

managers were assaulted by the workers. The workers laid a siege around the plant

from 2 pm to 1 a.m, on 27 November 2004 and did not allow anyone to go home

during this time. They indulged in vandalism destroying the area around the notice

board. It was only when the President of the Union intervened that the assembly

broke off 16. From 27 Nov 2004 the workers were adopting a deliberate go slow

movement in a concerted manner minimizing production to about 20% in the plant.

They were warned about deductions of wages accordingly 15.

The Union blamed the management for instigating the incident of 26

November and claimed that workers were well disciplined 17. It blamed the

management for putting up the Retrenchment Notice without informing the Union.

The management falsely represented to the workers that the Union had been sel\led

such notice when it had not been served, it was alleged. Stating that the notice had

mentally upset the workers and some of them had already sought help from

psychiatrists, the Union blamed the management for precipitating such a reaction

and making employees scapegoats. The Union took the stance. that it was owing to

raw material shortage that the production was low and that workers are resorting to

go slow was a distorted version of reality 17. The Union requested the management

not to make false and baseless allegations and strain the cordial relationship

maintained by the Union which had resulted in prosperity of the management.

In its letter, the Union asked the management to desist from throwing blame

on the union and victimizing its members and to come forward to resolve disputes

between the Union and Management amicably 17.

In a Counter Filed on Behalf of The General Secretary, Allwyn Employees

Voltas Union and Others to the Labour Commissioner, Hyderabad, on 17 January

2005, the Union termed the application for retrenchment as an act of victimization of

the workers. Accusing the management of trying to deprive the livelihood of workers

who have put in two. decades of service and wishing to introduce the contract labour

system instead, the Union stated that Voltas was planning to re-enter the

refrigeration market with the brand name of "Indicool" and therefore the intentions

of management to retrench were malafide. Interestingly, in the written response by

the Management to this argument, the Company declared that it had no intention of

introducing a new product as existing product "Coldcell" was not doing well in the

market. The production of a new brand was unviable. The "statement made by the

Company's Vice President to introduce new product was made to motivate the

dealers and retain their confidenceu".As such, the Company admitted that the

statements by the Vice President were motivated and had no foundation.

The Union claimed that the Government had sold the Sanathnagar p[ant to

Voltas in order to protect the employment of 5000 employees who were employed

by the Government. Voltas had been given by the Government, a large area of highly

valued land alongwith the factories; income tax exemption; waiver of unpaid interest

and penal interest and liquidated damages; low interest loans and lower electricity

charges. The Union claimed that the major incomes to the Plant have been reflected

in the account of Voltas Limited, Bombay and all losses were dumped in the

Hyderabad Plant account with vested interest to remove the employees and enjoy

the property which was given for the protection of the employees by the

Government. The Company had benefited to the tune of Rs. 153 crores from all

these grants, the Union said. It was alleged that the management had intentionally

created the loss situation to remove the employment of leftover 842 workmen. The

Management responded by stating that protection of employment of workmen did

not mean that though the workforce is surplus, the employment has to continue at

the cost of survival of the entire organization. The Management argued that waiver

of interest and other concessions were part of the revival package and could not be

construed as an extra benefit 11.

The Union submitted that the total Voltas Company as a whole was running

into profits of Rs. 40 crores in the year 2003-2004 as well as in 2004-05 and having

reserves worth Rs. 156 crores. "Once Voltas Limited has taken over the employees in

their organization, the Hyderabad unit employees are a/so part and parcel of Voltas

limited. Hence, seeking permission to retrench is not genuine10", claimed the Union.

The Management responded by saying that Voltas was also closing down Air­

conditioning Plant at Thane; Service Plant at Chinchpokli and retrenching personnel

from Canteen establishment at Chinchpokli as they were also unviable. The huge

losses by Hyderabad Unit were eating into the profitability of the whole Company,

jeopardizing its survival. Continuing this refrigeration business in the Unit would rob

the resources of the. entire Company. This will amount to robbing Paul to pay for

Peter. The Management submitted that retrenchment of 450 employees would save

the viability of the Plant and along with it the jobs of the remaining 525 employees.

Claiming that production had been increased from year to year; from one

lakh refrigerators to four lakh refrigerators and manpower reduced from 5000 to

1026; the. Union claimed that workers were not responsible for the ac~umulated

losses of the management. The Unions had never resorted to strikes for wage

increases in the last eleven years and there has never been any dislocation of

production in the factorylo.

The Union claimed that "there was no proper planning to run the industry

into profit and the management should have the vision and plan to produce and

market the product to the valued customers and create growth for the industry. It is

not the job of the workers to create the market share and their job is only to

produce the required quantity as per management planning. The workers

performance has all along been appreciated by the management through

appreciation letters for achieving targeted production figures and the workers were

producing according to the expectations of the management 10."

The Union claimed that the brand name is the bread and butter of every

industry and it is connected with quality and reputation and creation of market

share. Allwyn was a reputed brand since 1954 with a countrywide market share.

Instead of building on the brand through marketing teams and network, the

management sold away the reputed brand to Electrolux Limited in the year 1999-

2000. This resulted in the loss of market share of 2, 10,000 products 10. This was

purely the failure of the marketing strategy of the management, it was alleged. The

management contended that even Electrolux after acquiring the brand Allwyn could

not sustain losses and closed its unprofitable operations acquired from Voltas 11.

"As the management had failed to remove technical defects in refrigerators

leading to rejections; indulged in excessive procurement; increased inventory costs

and delayed deliveries; all this had resulted in steep losses to the Company," claimed

the Union.

The Union claimed that while the workers salary cost had been reduced, the

management cost had been hiked. "Management staff is highly paid ...... are

ine><perienced and the said gold coflared officers are solely responsible for bringing

the industry into doldrums 10". The management responded with facts that salaries of

management staff are 50% below than those of comparable units and salaries of

employees are three times more than salaries prevailing in comparable units in

industry; workmen wages had grown 300% till date since acquisition and

management staff had reduced from 373 to 82 since acquiSition 11.

Alleging management inefficiency, the Union criticized the stopping of

production of LPG cylinder units and furniture manufacturing units. Newly imported

furniture machinery was sold at scrap rates.

The workers are highly talented and multi skilled, the Union contended, since

they produced refrigerators for LG and Samsung of international quality. Countering

the rationale of the Company in comparing labour cost to contract labour cost, the

Union put forth data of labour cost of all manufacturing units of Voltas across the

country. The data showed that Hyderabad unit was the cheapest in labour cost

amongst all Voltas manufacturing facilities.

The Union averred that the Management was focusing on age of the

workmen without remembering the sweat and hard work of the workmen that had

brought international reputation to the Company. "Workmen cannot be treated as

denizen form of animals and throw the employees who are aged above 45 years on

the streets on the ground that the productivity will be achieved by encouraging

younger and contract labour 10."

Challenging the retrenchment on grounds of public interest, the Union

claimed that the management has already sucked the blood during the two decades

of service and only bones alone are with the workmen. The workmen have served

with utmost sincerity and devotion with a hope that the management will continue

proViding bread and butter to them and facilitate the education of their children. If

they are thrown on the streets, they may not get any employment and will thus be a

burden on society. The employees hoped that the management would not adopt

such unfair labour practice 10. The management in response stated that the

allegation was emotional and imaginary. Substantial monetary benefit had been

given to employees in terms of a 300% increase in wages in the last 11 years and all

perks and benefits were enjoyed by employees in spite of making losses. "In fact,

what is stated and alleged applies more to the state of the plant i.e. the blood and

bones both of the plant are on the wand1• "

Quoting a circular issued by Management on 04 June 2003 in which the

Company had specifically excluded the possibility of Plant closure, the Union also

denied that any feasible alternative employment had been offered by the Company.

The offer made to employees in August 2004 was for alternative employment in UAE

requiring employees to resign from Voltas and move to UAE on a two year contract.

No assurance of reemployment at Voltas after two years was given. It was an evil

design of the management, according to the Union !D. The management responded

that the contents of the Circular were true at the point of time, However, withdrawal . of huge orders by LG and Samsung constrained the Unit to apply for retrenchment.

The circular of 04 June 2003, signed by the Vice President Operations of the

Company had allayed expectations of the closure of the Company and blamed a

small group of employees for misguiding workmen and feeding them the fear of VRS.

Stating that management currently had no plans for VRS, the management had

pleaded to employees to "make a clear decision on whether you want self respect

within your family and society with a job in a Tata Company, or you choose to

collaborate for the closure of the unit for some meager financial gain, which is a

fraction of you present earnings, and will not last you for long. Do you want to be

employed with Voltas and add value to your motherland or sit at home and be a

burden to your families and society?l1."

The Deputy General Manager, Human Resources clarified to this researcher,

the context in which this circular of 04 June 2003 was issued. "The neighboring

Electrolux Plant had closed down and the employees there were given a hefty VRS.

The Vo/tas employees had started expecting and demanding a similar compensation.

At that time, there was no plan to offer VRS and so the contents of the circular were

correct".

Reiterating the plea that the workmen are in no way responsible for the

alleged losses suffered by the Company, the Union sought a human approach from

the· Court, so that 450 workmen are not thrown on the streets tlJ. The management

termed this approach of the Union as narrow minded and stated that low productivity

had contributed to the losses, If throwing on the streets was taken as an argument

then no permission for retrenchment would ever be granted. In this case there were

compelling business reasons warranting retrenchment 11,

The management responded to the arguments of the Union and claimed that

the only remaining Plant of the erstwhile Hyderabad Allwyn Limited was this

Hyderabad Unit of Voltas at Sanathnagar, which despite huge losses is still breathing

because of the constant struggle put in by management to keep it alive. If the

permission to retrench was not granted, the non-viable plant was bound to succumb

to total and permanent closure, throwing all employees out of employment. Thus

retrenchment was 'necessary to ensure survival of undertaking and thereby

protecting jobs of remaining employees, the Management contended 11.

Meanwhile, on 14 March 2005, the Management sought an extension of date

for consideration of retrenchment as dialogues with the Union had progressed and

an improved VRS was being offered to the employees.

Subsequently, on 12 April 2005, the Labour Commissioner turned down the

application for retrenchment of 450 employees of the Hyderabad Unit of Voltas.

On 20 June· 2005, an application was again submitted to the Labour

Commissioner, Hyderabad, by Voltas Limited seeking permission for layoff of 404

Surplus Workmen in Hyderabad Unit of Voltas Umited for the period of five months

from 01 Jul 2005 and 30 Nov 2005. The reasons stated were similar in that LG and

Samsung had withdrawn bulk orders and par.alyzed production. As VRS dialogue with

Union had failed there was no other option. The Union had demanded Rs. 8.15 lakh

per employee which was rejected by the management as it was not feasible. A VRS

was finally offered on 02 May 2005 with compensation ranging from minimum Rs. 5

lacs to maximum of Rs. 8.15 lacs. When it was announced on 26 April 2005,

workmen went on a flash strike followed by a go slow movement. The Union

instigated the strike and VRS outcome was nowhere near the required 450 numbers

13. The offer of an attractive VRS was spurned by the Union and did not receive

adequate response from the workmen. This was deepening the business crisis for the

unit.

"With no solution in sight either from the ... Labour Commissioners Office or

by the employees (in accepting the largest VRS offer we have made to any group of

employees in Voltas) the Hyderabad unit stands on the cross roads of a crisis and

calamity. Our monthly losses have started mounting even in the peak season 13."

On 10 August 2005, the Union filed a counter to the application filed by

Voltas Umited with the Labour Commissioner seeking layoff of workers .. Following

the rejection of application for retrenchment of 450 employees, the company was

trying to victimize the workers through layoffs. While 250 workmen availed of VRS

and left, this application was a method to coerce the remainder to accept VRS, the

Union alleged. The ulterior motive of the Company was to shift the factory outside

Andhra Pradesh by ruining the lives of workmen who had worked dedicatedly for two

decades, as per the Union. The reasons assigned by management were for "face­

saving without searching the heart and number of employees who wi/I be thrown on

the streets 12".

On 18 August 2005, the Labour Commissioner rejected the application for

laying off 404 workmen stating various reasons.

Aggrieved by the negative decisions of the Labour Commissioner on both

applications for retrenchment and layoff, Voltas Limited sought reference to the

Industrial Tribunal which the Government initially denied but later was compelled

through a High Court judgment to refer the case to the Tribunal. Reiterating their

contentions, Voltas drew attention of the Court to the continuing non-viability of the

Hyderabad unit which was "bleeding the resources of the Company, cannot be

allowed to rob the resources of the entire Company, much less the resources of

companies other than the petitioner company, in the TATA group and that if this is

allowed, it will amount to robbing Peter to pay Paul. .. H "

Then, at the behest of the Management and the Union, the Chief Minister of

the State intervened. He agreed to the joint request for mediation. This resulted in a

negotiated settlement by virtue of which the workers preferred voluntary retirement

on agreed terms.

As per the Secretary of the Voltas Employee Federation, the Unions in

Hyderabad had all political affiliations as they had come to Voltas from the State

Government of Andhra Pradesh. They were not part of the Voltas Employees

Federation and so they fought their battle independently.

5.7. Research Reports on the Downsizing Process

For employees who took VRS between 1999 and 2001, a Research Survey

was undertaken by Qignity Foundation at the behest of the Company in June 2002.

In an 'Analytical Study of Ufe after Retirement of Voltas VRS Retirees' 22, the report

focused on their feedback about how they were retired and if they could have been

retired in a better manner. While some retirees were angry and shut their doors on

the survey execution, many interacted with researchers in an informal manner. 69%

of 250 respondents had a cordial parting with the company; 7% were bitter and 6%

were angry about it. Some of the responses that reflect on VRS procedure are as

follows:

(i) "The Company should not use VRS to get rid of the workers."

(ii) "The matter should have been discussed properly with the workers.

We feel that we have been insulted and turned out of the Company

which is like our mothe/'

(iii) "The company should improve relations with workers while they are

working."

"Recommendations from retirees included more compensation; better review

of cases for VRS; alternate job placements; preference for Early Separation Scheme;

and fJexi-time job employment. 47 people were identified who needed counseling for

jobs/depression/family issues and jobs for respondent's children. The findings

showed that compensation package was largely an accepted figure and quality of life

of most respondents was normal. The people who were angry at the procedure

followed were a minority 22".

In another teaching case prepared by Prof. Monnipally, IIM Ahmedabad, in

April 2003, on the restructuring process, views of past and present employees were

recorded about the restructuring process 25. Some extracts of comments of

respondents ranging from workers to managers that are relevant to this study are

reproduced below:

(a) "The Tata Code of Conduct governs all business actions at Voltas. I and

hundreds of others are ready to go back to work because we are

confident that we will be treated fairly at all times. Inspite of a series of

staff reductions, we are sure that the image of Valtas remains

untarnished".

(b) "Rightsizing started with survival in mind; now, it is for enhancing profits.

What's wrong with wanting to make profits? Isn't that the purpose of any

business?"

(c) "We are convinced that the management was ruthless in achieving their

target of cutting our numbers down. The mangers have been telling us

that the high wages, overstaffing, low productivity, the difficult economic

situation in the country and the severe competition are the reasons for

cutting down our numbers. We disagree totally. We believe that

incompetent leadership, mindless outsourcing, and the anti-worker

mentality among managers who joined the Company in 1996 are the

main reasons for the series of schemes aimed at reducing our strength" .

. (d) "I have been at Voltas for 25 years. What I fail to understand is this. Can

a Company really cut flab by just throwing out workers who don't cost

much? Why are the manager's allowances and perks increasing every

year? Forget about reducing the number of officers. Why are they

recruiting more officers now?"

(e) "My job is safe as of now. I don't understand why we need VRS after·

VRS. They don't seem to have a specific target number to achieve. To

me, the purpose seems to be to just get rid of us, as many of us as

possible. They have declared 18% dividend this year. Could they have

done it if we were not making profits? Who are they kidding? They want

to reward shareholders but not the employees who bring in these profits" ..

. (f) "I fell vici:im to the management's strategy of creating fear psychosis.

They kept talking about an impending closure and the possibility of no

compensation. My previous company had closed down without paying a

single paisa to any of us employees. I was'nt going to burn my fingers a

second time".

(g) "Of course we would have cooperated with the management if they had

taken us as paltners. We did cooperate .with them in 1993 when our

Pharma Division had to be closed down and they wanted to send the

workers away through a VRS. Then they took the Union fully into

confidence. We had avery amicable settlement. The current management

is anti-worker and they see a threat in our (Union) unity".

(h) "If I had been in charge of downsizing at Voltas, I would have made more

efforts at co~opting the Union. I would have designed a pension scheme

instead of VRS with a one off payment. That would have been more

attractive to workers. A VRS scheme that included lifelong medical cover

would have provided the much needed sense of security".

(i) "The mangers deliberately spread rumors that a lockout was imminent. I

think they wanted to create fear in our minds and make us get out.

Frustrating tactics like transferring workers to overstaffed departments,

asking redundant workers to sit out, and other harassment measures

were used. These heightened the air of mistrust. The Union was not

brought in; naturally, it kept urging the members not to opt for VRS".

G) "The managers kept telling the workers that the objective of the staff

reduction was the Company's survival. But we are and always were clear

that the objective was to make more profits".

S.B. Outcome of the Turnaround Exercise

There was a formal closure to the restructuring disputes. On 01

October 2003, the VP (HR) Department of Voltas addressed a letter to the General

Secretary. All India Voltas Employees Federation, wherein a settlement was arrived

at between the Union and Management 3. The letter said," The Company has been

finding it extremely difficult to bear the cost of manpower. Under the circumstances,

the Company was constrained to resort to legal measures such as closure of its non­

viable units/activities, retrenchment of surpl us manpower etc. It was but natural

that, though such measures were undertaken in overall interest of the Company, it

has impacted the industrial relations in the Company. With this background the

Management had expressed its desire to the Federation to settle all the pending

issues by mutual negotiations ... ". In response to this letter the General Secretary of

the Union wrote to the Management on 03 October 2003, " ....... Though in principle

we 'are opposed to any Scheme Which envisages reduction of the employees, in view

of the present business scenario and the discussions we had with you, which has

culminated in your above mentioned letter, we have decided not to oppose your plan

to introduce VRS along with ex-gratia." Following this 38 cases pending in Courts on

various issues were withdrawn jointly by Management and the Union 3.

"Productive high performing employees are the Company's most valuable

assets 9". In the Annual Report of 2003-2004, the Company reported, "The industrial

relations scenario was cordial during the current year following an understanding

reached after a period of five years between the Company and the Employees

Federation, regarding the Company's need to safeguard the viability of its operations.

The Federation has agreed to cooperate with the Company towards reduction of

surplus manpower, constant improvement in productivity, cost reduction, product

quality, flexibility of work performance and employee performance.

''The Company offered enhanced VRS compensation in view of the lower

interest rates. This VRS was also extended to those employees who were earlier

affected by closure, retrenchment and dismissal. The Company has also agreed to

absorb young employees who were affected by such closure/retrenchment but did

not wish to opt for VRS. Many cases pending in Courts were withdrawn jointly by

Federation/Union and Management after this understanding. The long pending issue

of Bonus was a~so settled and the same was paid to the employees. The total

number of employees as on 31 March 2004 was 3593 as compared to 3935 per end

March, 2003 9".

According to the Advocate for the Company and Management Consultant, this

comprehensive settlement was a WIN-WIN solution as any settlement is a process of

give and take.

In the Voltas Worker - a journal of the All India Voltas Employees Federation,

issued on Federation Foundation Day, October 200?, the period of fighting the

Management on aI/ its moves towards restructuring and downSIZing and the resultant

se~ement in 2003 is described as the worst period in the Federation's history. After

the settlement there had been mass exodus of workers under VRS including front

rank office bearers of the Union 2Q.

Having stripped itself down to its core areas of strength, Voltas restructured

its businesses into four clusters that had immediate impact on chain of command;

status as financial· entities; performance appraisal, monitoring and reporting

mechanism and allocation of funds and resources 1.

According to the Vice President, Human Resources, "Success of the

restructuring was due to the conviction Qf the management. In the past,the

mahagement did not have conviction; was weak. Top management support was

lacking. Conviction made a lot of difference. It was only after 1997, that

management started talking about operational imperatives. ".

By FY 2004, Voltas had completed its restructuring phase, and moved into its

new incarnation as a turned around company ready for consolidation and growth.

Some of its accomplishments were:

Featured on the biggest wealth creator list of 2004

. - Rationalized workforce .

Stronger Market presence

Absence of Non Productive Assets

Strong and Efficient Systems and Processes

Strategic Planning for Sustained Growth

Greater agility in responding to growth opportunities

According to the Chief of Corporate Communication, "The whole point of the

restructuring exercise was not just to prevent against future brutal losses, but in fact

to become a Company capable of sustained high growth. Voltas has transformed

itself into one of the re-emergentand rising stars of the new business millennium 1.

The successful outcome of the turnaround exercise can best be seen in the

following brief round -up of performance statistics 1.

In FY 2005: the Company had 13.5 % market share in domestic AC Solutions.

had 2855 employees

32% growth in sales to Rs. 199902.29 crores YoY

42% growth in net profit to Rs.70,49 crores YoY

Now targeting Rs.10, 000 crare turnover by FY 2010-11 with CAGR 40%,

10% margin.

In a message to employees on the occasion of Diamond Jubilee in October

2007, the President of the Federation stated 4, " Mumbai Union has always fought

against the forces of disruption .. .It has not allowed Party Politics to enter the Union

and has been functioning based on working class. outlook ... the assurances given by

the management regarding job potential and job security in the Company have not

been kept up. The result is a great shrinkage of number of employees of unionized

category in Mumbai and elsewhere and spurt in contractual labour engagement

everywhere ... The struggle for preservation of job security and employment potential

in Voltas is very difficult to fight in an isolated manner. It requires to be fought as

per the working class struggles in the country involving ourselves more and more in

the trade union movement." Criticizing the erstwhile leadership's outlook to rely on

legal remedies rather than the worker's united strength; the President said that the

Management had left many issues unresolved. The Secretary of the Federation

stated, "It is a pity. that the Management could not exploit our strength. It was

always the ego of the management that led to poor relations."

"In the recent past, Voltas has been making huge profits and sharing it only

with shareholders and· officers. Share offered to unionized employees and

unorganized contract labor is not at all satisfactory. Here lies the responsibility of the

leadership to secure equitable share to workers while extending cooperation to

Management to achieve better and better results, bearing in mind that cooperation

should not cross the 'Lakshaman Rekha'and become coflaboration/' the President of

the Employee Federation stated in the Diamond Jubilee message.

Incidentally, in the same journal, the complimentary letter from VP (HR) is

published wherein he states that "the Management looks forward to an era of

cooperative endeavor and collaborative functioning that alone can enable realization

of the Company's ambitious goals 4."

The Secretary of the Voltas Union, Mumbai stated that as of now, the

unionized category of workers was losing out the work done originally by them to

management trainees, casual. labour, contract labour, management supervisors,

quality control and clerical cadres. The Secretary felt that the aim of the

Management was to get the unionized category abolished. "From 8000 members we

have already reduced to about 650." He added that the "Management people stay in

the air and take away a large piece of the largesse. There are training programmes

and development opportunities for managers and lots of money are spent on them

to raise their quality of life but when we ask for a daily egg in the canteen, the cost

factor comes up."

The Secretary added," We had to fight even for two cups of tea to be given

to workers during their shift. Management on their own have never given us

anything. We have struggled to get everything and so we hold on to it strongly".

Criticizing the CSR initiatives of the Company, the trade union representatives

stated that while the Company draws media mileage out of its CSR activities, there

was Diya Tale Andhera (Darkness under the lamp). The Company was not looking

after its own employees and "there was "Bhed Bhav" (impartiality) while they

claimed fairness andtransparency. Their actions are not in conformity to what they

claim to be as a TATA company. What hurts us more are their claims which are not

based on reality."

The Secretary of the Federation admitted that Unions ali over the industry

were now on low ebb and there were just a handful of Federations left in the

country.

According to an HR executive, successive rightsizing did not increase the

workload of those who stayed back but among those who stayed back there was

fear and uncertainty about being targeted next 25.

The erstwhile MD reminisced, "I liked speed. I was impatient. I would be

advised that I was going too fast. I was asked to give Union time to digest. They are

used to working and thinking in a linear process whereas I was used to multi­

tasking. I never /ostsight of the agenda. The Union would cali me "Kasai {Butchery"

in public forums. They said that I have no feelings. But the VRS given was generous

and humanitarian".

In the next chapter, the study is concluded and its implications and

directions for future research identified.

Annexure - A

Transcript of An Interview with the erstwhile Managing Director

of Voltas limited'

Within 8 months time, we would have gone to BIFR. We had our back to the

wal/. We were in dire straits. We had no choice. So we told the Union - We will do it

with your cooperation and we will also do it without your cooperation-only that it will

take a little longer.

When the Company was in a financial criSis, the thinking was that it is all

because of the market. The tendency was to blame external conditions and not carry

out any introspection as to the causes. When we did an evaluation of businesses

based' on Economic Value Added perspective we realized that we were destroying

our own capital. At that time the Board was recommending a debenture issue to tide

over the crisis but when Tata Sons said," Nol ", the light began to shine, It was then

that the Board got serious about addressing the issue squarely from within our own

resources. We identified unused assets held by the Company and started

''debagging the businesses', which meant that without disturbing the operations, we

would identify what baggage (unused assets) could be removed and monetized. In

this way, the true values of the business would emerge and the residue could be

monetized to create extraordinary income to meet extraordinary expenditure of

closure and VRS. Even after debagging, some businesses remained EVA negative and

so there were intrinsic problems that needed looking into.

The Tata culture till then, was not of dosing down, or if closing down, follow

it up with redeployment and relocation of both equipment and employees. The

managers were not used to confrontation and the management also never backed

managers who adopted a confrontationist attitude towards employees. So managers

were meek. The Union had a history of fighting the management and had often won

• The erstwhile MD- Mr. N.D. Khurody was interviewed at Willingdon Sports Club, 24 Dec 2007, 1300-1500 hours. Permission to include interview in study was obtained.

their demands. It was a communist ideology that they followed. Because of weak

managers and leadership it was always the tail wagging the dog.

So, one of my first steps was to strengthen the management. For the planned

changes, support of the Chairman and th€ Board of Directors is necessary. If

possible, the Board should be changed to allow new thinking. This is what we did.

We persuaded Board members to resign and allow new Directors to move in so that

the issues could be looked at from a fresh and deeper perspective. Earlier, the Board

functioning was perfunctory with Board Members invariably rubber stamping the

decisions of the Chairman/Managing Director without an in-depth analysis of issues.

This procedure had led to strategic errors. From then on, the minutes of Board

meetings would read like the Mahabharata (a Hindu epic). Decisions would not be

based on hunches now as it was team based decision-making.

Overcoming resistance to change requires that senior managers toe the line

of new thinking. If "butchering' is needed, clean out the upper decks first

Bottlenecks are always at the top of the bottle. Many managers were not convinced

about the changes proposed. I had to move out 22 such personnel but they were

removed from the scene in the typical Tata way viz. with dignity intact.

These changes at the Board and top management levels were symbolic as

the message got across to the entire organization that I was serious about my

business.

To establish the authority of Managers, we had first to educate them on their

rights and make them more assertive in their dealings. They had to be convinced

that the Management would always back them. I started communicating with people

directly on grounds of reason and unreason stressing on facts and relying on hard

logic. My talks used to focus on the here and now - the current situation and the

not too distant future for the Company. The managers were regaining their vitality

and a sense of pride in Voltas was redeveloped. They were convinced that we were

going to fight a fair and just war and we restored pride in the managers and

strengthened them to face the Union.

A major issue for the Board was the understanding of the Company identity.

Voltas had the image of a marketing Company and yet the characteristics of a

marketing Company were not present. We were more of traders. Our business model

was B2B and not B2C. We provided engineering services and were distributors of

products. We were not a manufacturing Company and yet we had ventured into

ma!1ufacturing. In my view, this was a strategic error.

In situations of organizational change and turnaround like Voltas faced, we

followed certain communication principles. First, Communication should be

undertaken internally or externally, directly or indirectly only after a clear and

objective perspective or diagnostic on the situation leading to the crisis is obtained.

Secondly, this perspective should then be shared and debated widely. Thirdly,

transparency must be established as an integral part of the process, underpinning all

actions. Fourthly, establishing determination in managers to achieve the agenda is

needed. Fifthly, support of Board of Directors and Chairman is essential and top

management support to the initiative is vital.

Sixthly, there' is a need to cross conventional barrier of Union versus Non­

Union or Management Versus Supervisors etc. There is a need to look for people

who understand change and use them as change leaders/agents. Office bearers are

the least likely to be change agents. There is a need to reach individuals and not

hierarchies. Debate must be encouraged.

Seventhly, Communication poliCies must be laid out on external

communication with the Press; Internal communication with employees;

Communication with promoters (Tatas); Communication with

shareholders/stakeholders; and Communication with Bankers (lenders). When I took

over, the media framed me as a savior on the front page asking the question, "Will

he deliver?" I controlled communication with external media during the change

process. Over exposure is not good. We must tell the story after it is over, as a

case study.

Eighthly, we had started engaging the employees on facts. Why was L&T

dOing splendidly, while Voltas Limited sank? Both were in the same business, space

and both of same age. One founded by two corporate giants, the other by two

engineers stranded in India.

Ninthly, communication must move on to the 'what' and 'why' of change. We

muSt stick to bare facts. Our only alternative was closure. Keep repeating the same

theme. Avoid tit-for -tat exchanges. Avoid responding to taunts and insults. Be

humorous and raise yourself above it all.

Tenthly, commence a policy of de-bagging the business, so that the true

woith of businesses emerge and the reSidue can be monetized to clear out/VRS etc.

Eleventhly, organizationally, keep the business drivers and clean up drivers

separate.

Twelfth, strengthen. the character of top management; weed out weak

people.

Thirteenth, keep agendas SIMPLE, transparent, do-able and inflexible as far

as fang term goals are concerned.

Communication must be thought through before execution. You need

someone to bounce your communication on to test its impact. Then you need to be

simple and consistent and avoid jargon and cloudy language. Debate must always be

encouraged. Unions unfortunately view debate as a power game.

When McKinsey did a study for the Tata Group, they had listed Voltas in the

Non-Core List of Companies. I used to show this to the Union telling them that we

might get sold off and who knows what the new owners will be like. They would not

believe it but I still used it as an argument to play on their fears.

I am not good at using ambiguity in communication. I am simple and direct. I

was told that sometimes subtlety is more important but I could not be subtle.

Companies that do well today are ones who have a single focus. Voltas did

not have the single focus. It also lacked depth of management because of over-

diversification. Succession planning was not very well planned. So downsizing was

essential. We had so many unused assets all over the country. The Calcutta offices

had so many empty warehouses and machines lying idle. All that had to be closed

down.

When I told the Board that I was going in for several closures, they said why

not: do it, one by one. I told them that it was better to do it all at once: So I opened

malW battlefronts at the same time. I liked speed. I was impatient. I would be

advised that I was going too fast. I was asked to give Union time to digest. They are

used to working and thinking in a linear process whereas I was used to multi­

tasking. I never lost sight of the agenda.

The Union would call me "Kasai (Butche!)" in public forums. They said that I

have no feelings. But the VRS given was generous and humanitarian.

Annexure - B

References for Voltas"

1. Voltas - A Nutshell History, Brief prepared by the Chief of Corporate

CommUnication Department, January 2005.

2. Settlements on Computerization, Automation, Contract Labour, Internal

Company Document, Industrial Relations Department, Voltas Limited. 21

January 1987 .

.3. Voltas letter No. ER!01/03 dated 01 October 2003 addressed to The General

Secretary, All India Voltas Employees Federation, Mumbai.

.4. Diamond Jubilee Brochure, Voltas Employees Union, October, 2007.

5. Application seeking permission for retrenchment in the Industrial Canteen

made to the Labour Commissioner, Mumbai, 07 Oct 2002.

6. Application seeking permission for retrenchment of surplus workmen from the

Hyderabad Unit of Voltas Limited, made to the Labour CommiSSioner,

Government of Andhra Pradesh, 07 Nov 2004.

7. Annual Report 2001-2002.

8. Annual Report 2002-2003.

9. Annual Report 2003-2004.

10. Counter Filed on Behalf of The General Secretary, AJlwyn Employees Voltas

Union and Others to the Labour Commissioner, Hyderabad, 17 January 2005.

11. Synopses of Arguments before the Labour CommiSSioner, Hyderabad by

Voltas Limited in the Application Seeking Retrenchment of 450 workmen.

12. Counter Filed by the Union to the application by Voltas Limited with the

Labour Commissioner seeking layoff of 450 workers, 10 August 2005,

13. Application submitted to the Labour Commissioner, ,Hyderabad, by Voltas

Limited seeking permission for layoff of Surplus Workmen in Hyderabad Unit

of Voltas Limited, 20 June 2005.

14. Writ Petition 8762 of 2Q05 in the High Court of Judicature of Andhra Pradesh

at Hyderabad filed by Voltas Limited Vs. Government of Andhra Pradesh and

others.

15. Notice to Workmen dated 20 Dec 2004 on Go Slow issue .

• The chapter end note serial numbers above refers to the number inserted in the text in chapter fiVe.

16. Management Letter to the Secretary of the Allwyn Employees Union dated 02

Dec 2004 regarding violent and unlawful incidents of 26 Dec 2004.

17. Letter from the Allwyn Employees Union addressed to General Manager

(Manufacturing) dated 21 December 2004 replying to Management Letter

dated 02 Dec 2004 .

. 18. Application for Closure of Cooling Appliances Business Division at Main Plant,

Thane of Voltas Limited made to the Labour Commissioner, Mumbai, 08

October 200l.

19. Annual Report of Voltas 1998-99.

20. Annual Report of Voltas 1999-2000.

21. Annual Report of Voltas 2000-2001.

22. "An Analytical Study of Life after Retirement - Voltas VRS Retirees (Employee

who took VRS 1999-2001)", Research Survey by Dignity Foundation, June

2002.

23. Circular - 7 of Voltas and Volkart Employee's Union, Mumbai, 20 Dec 95.

24. 'Voltas Worker' - an organ of the AU India Voltas Employees Federation,

issued on Federation Foundation Day, October 2007.

25. 'Restructuring of Voltas Limited', Case prepared by MM Monnipally, lIM

Ahmedabad, June 2006.

Annexure - C

List of Key Informants from Voltas Limited

(a) Erstwhile Managing Director, Voltas Limited, Mr. ND Khurody.

(b) Executive Vice President (Human Resources), Mr. Anil J Gole.

(c) Chief of Corporate Communication Department, Mr. BN Garudachar.

(d) Assistant General Manager, Human Resources, Mr. CV Sahaje.

(e) Deputy General Manager, Human Resources, Sanathnagar Plant,

Hyderabad,·Mr.Butchaiah.

(f) Advocate for the Company and Management Consultant, Advocate Nirmal.

(g) General Secretary, All India Voltas Employees Federation, Mr. RK Nambiar.

(h) Secretary of Voltas Employees Union, Mumbai, Mr. Ramesh Nair.