 "Demerger blues")
Today businesses and organisations face relentless pressures to become leaner. Such demands are the result of global competition and rapid technology change. Many organisations have responded by corporate restructuring and downsizing, often 'spinning off' divisions originally part of the larger scheme of things. The logic is, when you demerge different units, each unit can focus on specific areas of business, sharply improving their prospects in the larger marketplace. And if the stock prices of the recently demerged entities in the country are anything to go by, the market has definitely given a thumbs-up to most demergers.
One of the more visible signs of organisational restructuring is that many firms have become flatter on the organisational chart. In search of efficiencies, some of them have removed entire layers of management to speed up communication and reduce headcount.
So far so good. But what often ends up roiling the water is the prospect of employee redundancy (HP, which is headed for a split, may cut around 55,000 jobs globally), redeployments and job separation as a company gets into the restructuring mode. A review of literature on spin-offs and demergers seems to suggest that a split in business can be organisationally disruptive as it can cause stress and broken bonds between employees who feel vulnerable and not in control of their careers. Given this, experts suggest corporate leaders must ask some fundamental questions before embarking on a demerger exercise: How can the company work to minimise the human impact of a demerger while remaining competitive? Indeed, how does the psychological contract between the worker and the employer change post a split? Above all, how can the workforce be motivated to perform better after the split?
It must be understood that regardless of whether an organisation conceptualises and designates its spin-off as re-engineering or re-organisation of business, the adoption and implementation of workforce reorientation strategies will inexorably produce considerable financial, organisational, and emotional effects. While some such outcomes can be anticipated and are tangible, others have unexpected, long-term consequences that are difficult to measure.
Back to basics
Speaking to The Strategist recently, Wayne F Cascio, who has written extensively about employment downsizing and restructuring, had said that corporate restructuring exercises (including demergers) have deep psychological scars on employees (existing and the outgoing ones). Cascio, who is a professor of Management at the University of Colorado, says that to mitigate the risks companies must begin by asking a simple question: Are we facing a short-term crisis or do we think that our business needs to undergo fundamental structural changes in that we need new plans and new strategy, a complete overhauling to move forward? In other words, to make the move successful, the organisation needs to set out the goals clearly before embarking on a demerger - or any other manner of restructuring - exercise.
Once the business leader is clear in his mind on what the objective is, the expectation from the employees becomes easier to set. According to Sridhar Ganesan, country head, Hay Group India, while the demerger mandate is always clear most of the time - to grow the business in a completely independent landscape - it is the mindshift of employees that needs to be plotted carefully before the restructuring takes place. "Employees can be concerned about their roles in view of the talent movement that will take place. The accountability of the new company also goes up with the pressure to perform better," he adds.
The best way to deal with this scenario is through communication. Crystal clear communication, to be precise. This means the HR has to be taken into confidence early on in the process so that it can chalk out a communication roadmap for the people who stay back, for the people who move on, and for those who must go.
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See how Future Group managed its demerger exercise. In 2012, Pantaloon Retail India and Future Ventures India decided to demerge their lifestyle fashion businesses into Future Fashion. Given the speed at which the company was restructuring (it further demerged its businesses in fashion, hypermarket and food) even altering its business model time and again, it was natural for the employees to feel uneasy. Looking at the growing restlessness and uncertainty among employees, the company management took two key decisions pretty early on its course - first, that it had to "talk" to the people; and second, that all communication had to flow from one common source that would filter down to the last employee, even those operating from the shop floor.
To this end, the company announced a special-purpose telephone number, dialing which any employee could get in touch with Future Group's founder Kishore Biyani. Additionally, every Friday Biyani addressed and updated the employees on the company's plans. Videos were shot specifically targetting the shop floor staff, in which Biyani briefed his employees about the latest developments at the company. The whole exercise was orchestrated in a manner that people felt they knew what was going on leaving little room for speculation. "We constantly sought feedback from people, tried to understand how we could add value to the employee's role in the restructuring phase," says Kaustubh Sonalkar, head, people office, Future Group.
Planned meticulously over five quarters, the demerger process left very few casualties in its wake. The best part, according to the company, was that there were no lay-offs, zero attrition. "The HR team had so much data that it could distribute roles and job opportunities within the organisation," says Sonalkar who agrees that many Indian companies still need to refine the systems and processes to make a demerger smooth. "The spotlight cannot be only on the shareholders; you have to understand that value erosion can happen when employees are dissatisfied or asked to leave," he adds.
According to independent HR consultant Gautam Ghosh, "A corporate spin-off is not necessarily bad news for employees. The problem is that many organisations do not communicate a demerger strategy to their employees proactively. In fact, in my experience, even some MNCs, known otherwise for their professional management practices, fail to share a clear roadmap with their country or regional offices making the whole process painful and fraught with risks." Ghosh warns communication that is one-way is not good enough. "A company that runs a global business should consult the leaders of all the countries to assess the HR implications of tough business decisions. This will help them avoid bad press," adds Ghosh.
Analysts say that companies that have split businesses successfully in recent years - such as Marico, Crompton Greaves, Polaris and Wipro - have planned well and have been rewarded handsomely. Some of them have even helped outgoing employees via out-placements with the promise that they can return at an appropriate time in the future.
That said, the communication strategy has to be more refined. Gurprriet Siingh, country head, YSC India, an HR facilitator, points out that some organisations tend to procrastinate on breaking the news relating to far-reaching changes in the organisation by design. "Demergers can create confusion among employees and affect the company's performance at the stock market. Responsible companies must know that it is the employees who have to finally bear the impact of such decisions, some of them may have to pay a heavy price if things go off-track. So it is best if the people know the facts before the shareholders do."
Rajiv Kapoor, chief people officer at Fortis Healthcare, adds, "Not informing employees timely about demergers could be a ploy to get rid of some part of the workforce. This includes employees who will start looking for opportunities outside the organisation at the sign of trouble. This will ease the downsizing drive."
Clearly then, the success of a business split boils down to transparency and clear conversation between the employer and the employees. The secret sauce is to tick all the boxes relevant for any restructuring exercise: preparing early, putting together a transition team, focusing on clear communication and knowing that engagement (even with outgoing employees) won't be over even after you have gone through the legal routine.
One of the more visible signs of organisational restructuring is that many firms have become flatter on the organisational chart. In search of efficiencies, some of them have removed entire layers of management to speed up communication and reduce headcount.
So far so good. But what often ends up roiling the water is the prospect of employee redundancy (HP, which is headed for a split, may cut around 55,000 jobs globally), redeployments and job separation as a company gets into the restructuring mode. A review of literature on spin-offs and demergers seems to suggest that a split in business can be organisationally disruptive as it can cause stress and broken bonds between employees who feel vulnerable and not in control of their careers. Given this, experts suggest corporate leaders must ask some fundamental questions before embarking on a demerger exercise: How can the company work to minimise the human impact of a demerger while remaining competitive? Indeed, how does the psychological contract between the worker and the employer change post a split? Above all, how can the workforce be motivated to perform better after the split?
It must be understood that regardless of whether an organisation conceptualises and designates its spin-off as re-engineering or re-organisation of business, the adoption and implementation of workforce reorientation strategies will inexorably produce considerable financial, organisational, and emotional effects. While some such outcomes can be anticipated and are tangible, others have unexpected, long-term consequences that are difficult to measure.
Back to basics
Speaking to The Strategist recently, Wayne F Cascio, who has written extensively about employment downsizing and restructuring, had said that corporate restructuring exercises (including demergers) have deep psychological scars on employees (existing and the outgoing ones). Cascio, who is a professor of Management at the University of Colorado, says that to mitigate the risks companies must begin by asking a simple question: Are we facing a short-term crisis or do we think that our business needs to undergo fundamental structural changes in that we need new plans and new strategy, a complete overhauling to move forward? In other words, to make the move successful, the organisation needs to set out the goals clearly before embarking on a demerger - or any other manner of restructuring - exercise.
Once the business leader is clear in his mind on what the objective is, the expectation from the employees becomes easier to set. According to Sridhar Ganesan, country head, Hay Group India, while the demerger mandate is always clear most of the time - to grow the business in a completely independent landscape - it is the mindshift of employees that needs to be plotted carefully before the restructuring takes place. "Employees can be concerned about their roles in view of the talent movement that will take place. The accountability of the new company also goes up with the pressure to perform better," he adds.
The best way to deal with this scenario is through communication. Crystal clear communication, to be precise. This means the HR has to be taken into confidence early on in the process so that it can chalk out a communication roadmap for the people who stay back, for the people who move on, and for those who must go.
| LOOK BEFORE YOU SPLIT |
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- Use the demerger exercise as an opportunity to address long-term problems. You need to clearly understand why the demerger is taking place after all. Invest time in assessing the impact on those who are moved to the new entity, and the ability of the organisation to serve its customers. Answer questions like what systems will be in place for the demerged company? What will be the support from the parent company in the initial phase of operations? What tools will the HR use to communicate with the employees so that the best talent is retained and no one feels shortchanged?
- Before taking a final call on the split, ask employees about their concerns and seek their input. Never underestimate the value of asking your employees for ideas. Even if their ideas do not make good business sense and cannot be put into action, you, as the employer, will have demonstrated to your workers that they matter. Make special efforts to solicit the input of “star” employees or opinion leaders within the organisation, for they can help communicate the rationale for the impending restructuring to their fellow employees and promote trust in the restructuring effort. Involve the HR team right at the outset, ask for their inputs in developing the communication that would eventually filter down to employees.
- Keep the channels of communication open while retaining focus on both the employee and the customer. Make employees understand why a new entity is being carved out, or why a division needs to have its own identity instead of being seen as a ‘liability’. Explain to customers why a separation from the parent company is important. Communicate in a variety of ways in order to keep everyone abreast of new developments. Executives should be visible, active participants in this process, and be sure that lower-level managers are trained to address the concerns of victims as well as survivors.
- If layoffs are necessary, make decisions in a consistent manner to ensure that employees perceive the process as fair. Before laying off employees, be sure that you have looked at all the options, including asking your employees whether they would be willing to make ‘small sacrifices’ for the good of the company. Employees can show surprising loyalty and flexibility if they perceive their employer to be fair. Try to retain your best performers, and provide maximum advance notice to employees whose services you need to terminate. Ensure that management at all levels shares the pain and participates in any sacrifices employees are asked to bear.
- Keep the communication going even after the demerger is complete. It could be an idea for HR teams, among other teams, to continue communicating with the people till both the companies achieve stability. This will minimise disturbances to both the parent and the demerged company and reduce speculation.
- Examine all systems and processes in the light of the change of strategy or environment facing the firm. Train employees and their managers in the new ways of operating. There is enough evidence to show that firms in which training budgets are increased following a restructuring are more likely to see improved productivity.
With inputs from Sridhar Ganesan, country head, Hay Group India
See how Future Group managed its demerger exercise. In 2012, Pantaloon Retail India and Future Ventures India decided to demerge their lifestyle fashion businesses into Future Fashion. Given the speed at which the company was restructuring (it further demerged its businesses in fashion, hypermarket and food) even altering its business model time and again, it was natural for the employees to feel uneasy. Looking at the growing restlessness and uncertainty among employees, the company management took two key decisions pretty early on its course - first, that it had to "talk" to the people; and second, that all communication had to flow from one common source that would filter down to the last employee, even those operating from the shop floor.
To this end, the company announced a special-purpose telephone number, dialing which any employee could get in touch with Future Group's founder Kishore Biyani. Additionally, every Friday Biyani addressed and updated the employees on the company's plans. Videos were shot specifically targetting the shop floor staff, in which Biyani briefed his employees about the latest developments at the company. The whole exercise was orchestrated in a manner that people felt they knew what was going on leaving little room for speculation. "We constantly sought feedback from people, tried to understand how we could add value to the employee's role in the restructuring phase," says Kaustubh Sonalkar, head, people office, Future Group.
Planned meticulously over five quarters, the demerger process left very few casualties in its wake. The best part, according to the company, was that there were no lay-offs, zero attrition. "The HR team had so much data that it could distribute roles and job opportunities within the organisation," says Sonalkar who agrees that many Indian companies still need to refine the systems and processes to make a demerger smooth. "The spotlight cannot be only on the shareholders; you have to understand that value erosion can happen when employees are dissatisfied or asked to leave," he adds.
According to independent HR consultant Gautam Ghosh, "A corporate spin-off is not necessarily bad news for employees. The problem is that many organisations do not communicate a demerger strategy to their employees proactively. In fact, in my experience, even some MNCs, known otherwise for their professional management practices, fail to share a clear roadmap with their country or regional offices making the whole process painful and fraught with risks." Ghosh warns communication that is one-way is not good enough. "A company that runs a global business should consult the leaders of all the countries to assess the HR implications of tough business decisions. This will help them avoid bad press," adds Ghosh.
Analysts say that companies that have split businesses successfully in recent years - such as Marico, Crompton Greaves, Polaris and Wipro - have planned well and have been rewarded handsomely. Some of them have even helped outgoing employees via out-placements with the promise that they can return at an appropriate time in the future.
That said, the communication strategy has to be more refined. Gurprriet Siingh, country head, YSC India, an HR facilitator, points out that some organisations tend to procrastinate on breaking the news relating to far-reaching changes in the organisation by design. "Demergers can create confusion among employees and affect the company's performance at the stock market. Responsible companies must know that it is the employees who have to finally bear the impact of such decisions, some of them may have to pay a heavy price if things go off-track. So it is best if the people know the facts before the shareholders do."
Rajiv Kapoor, chief people officer at Fortis Healthcare, adds, "Not informing employees timely about demergers could be a ploy to get rid of some part of the workforce. This includes employees who will start looking for opportunities outside the organisation at the sign of trouble. This will ease the downsizing drive."
Clearly then, the success of a business split boils down to transparency and clear conversation between the employer and the employees. The secret sauce is to tick all the boxes relevant for any restructuring exercise: preparing early, putting together a transition team, focusing on clear communication and knowing that engagement (even with outgoing employees) won't be over even after you have gone through the legal routine.