Financial Daily from THE HINDU group of publications
Saturday, May 11, 2002
Columns - Focus
Tata Steel's `rightsizing' may continue
Rabindra Nath Sinha
KOLKATA, May 10
THE results of the rightsizing exercise carried out by Tata Steel over nine years to 2001-02 are quite revealing. Perhaps, the most striking outcome has been the drop in the average age of employees to 39 years from 46 years during this period.
Figures officially released by the company recently show that at the end of 1992-93, it had an employee strength of 78,669.
From this base level, the employee strength at the end of the succeeding financial years was: 1993-94 - 76,436; 1994-95 - 74,875; 1995-96 - 72,252; 1996-97 - 68,892; 1997-98 - 64,753; 1998-99 - 59,235; 1999-00 - 52,167; 2000-01 - 48,821; 2001-02 - 46,350.
Before an analysis is made to determine the extent of natural wastage and response to the company's early separation schemes announced from time to time, it may be pointed out that for the first time since rightsizing was embarked upon in right earnest in 1995-96, the Tata Steel directors' report for 1998-99 had this to say: "The company has been implementing a series of `early separation schemes' (ESS) since 1995-96 for its surplus employees and till March 31, 1999, 12,141 employees have opted for voluntary retirement under these schemes. The schemes provide for the payment of monthly pension till the age of normal retirement.''
The number of employees at the end of 2001-02 at 46,350 showed a difference of 32,319 when seen against the position at the end of 1992-93.
As ESS came into vogue in 1995-96, it should follow that the drop up to 1994-95 was mainly due to natural wastage.
Therefore, between 1995-96 and 2001-02, there was a contraction in the employee strength by 28,525.
It goes without saying that while Tata Steel's thrust was on rightsizing, circumstances must have also compelled it to make need-based recruitments.
If the number of people recruited is taken at an average of 250-300 per year from 1995-96 to 2001-02, the total recruitments work out to around 2,000.
When these facts are considered, it follows that the number of employees since the introduction of ESS dropped by an estimated 26,000.
But alongside ESS, there was natural wastage too during this period. And, therefore, the entire reduction cannot be attributed to ESS.
It appears that approximately, the share of natural wastage in the total staff reduction was one-third or around 9,000. Therefore, it is safe to assume that as a result of ESS, it was able to drop employee strength by 17,000 or so. For the records, it may be mentioned that the last ESS closed on April 30, 2002.
An analysis of the number of employees at the end of financial years starting 1995-96 when, in a sense, ESS became the order of the day at Tata Steel, shows that the maximum reduction by 7,068 was achieved in the course of 1999-2000.
One definite reason was the sale of the cement plant to Lafarge in October 1999.
With the closure of the last ESS on April 30, the question that arises now is: Will the company persist with rightsizing and when will it announce fresh ESS?
All that can be said at the moment is that the company will persist with rightsizing; but its pace will depend on its assessment of several factors.
Naturally, in the light of the assessment, it will determine the timing for the next ESS.
In its Vision 2007 statement, the company talks about, inter alia, outsourcing and divestments in non-core or chronically under-performing businesses. Outsourcing of utility services, such as town administration, running of hospitals and some other non-plant- related services has been high on its agenda for quite some time past.
In fact, the objective was mentioned for the first time by Mr Ratan Tata, in his Chairman's statement, which formed part of the annual report for 1997-98.
Mr Tata had then said: "It will also need to...review its involvement in several peripheral related and unrelated businesses...''
Its decision on further rightsizing will also hinge on whether it opts for sizeable fresh investments in facility creation to correct the mismatch in flat-long ratio - currently 67:33 - by having a higher share of long products to take the flat-long ratio to, say, 60:40.
A decision on this issue is likely by July and, if the company opts for the plunge, a tight time schedule for implementation is certain.
The other reality that will influence the decision on further rightsizing is the status of the lowest-cost producer of steel it attained last year.
A significant observation in the explanatory notes on the Vision 2007 statement in this connection reads: "The world outside is, however, changing fast and the lowest cost status is constantly under threat from new technologies, currency depreciation in other countries, cost escalation of raw material inputs, energy and labour etc.''
Circumstances so far have not allowed the management to outsource utility services such as town administration and running of hospitals. The company will be better placed to achieve this objective once the long-pending issue of renewal of lease is sorted out by the Jharkhand Government.
What may be the scenario, say, in five years to 2006-07? If outsourcing of the identified non-core activity materialises, the management may be able to cut employee strength by at least 3,000.
Other possible divestments, natural wastage and implementation of new ESS may help it shed about 8,000 employees during this period.
This is, of course, assuming that the company will not be as strident in cutting employee strength as it has been in the preceding seven years. Assuming there are about 1,000 need-based additions, at the rate of about 200 a year, Tata Steel may close 2006-07 with about 36,000 employees on its rolls.
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