Restructuring: Tata Motors rolls out VRS, moves to a flat five-level hierarchy

Dr. S. Gowri , Senior Professor

Sankara Institute of Management Science(SIMS)

Tata Motors, India’s largest automobile maker, has started rolling out a voluntary retirement scheme (VRS) for its employees as part of its organisational restructuring exercise. This is part of a human resources (HR) restructuring drive that is expected to transform the organisation into a much leaner company with a flat hierarchical structure. The new structure will be in place from April 1.

So far, less than 500 executives have been offered VRS, which roughly includes one year’s salary, among other benefits, sources said. The company, however, did not confirm the details of the VRS package or how many were offered VRS.

A company spokesperson said: “Tata Motors confirms that as part of the ongoing organisation effectiveness project, where we have already finalised the top two levels of our management structure, a proposal on VRS package has been presented and approved by the board. Since the exercise for selecting L3-L5 is still underway, it is premature for us to comment on any other specifics at this point in time.”

From a 15-16-level hierarchy, the organisation is moving to a flat five-level hierarchy. Earlier, Tata Motors had three levels in the supervisory grade, five in the managerial grade and around six or seven in the executive grade. Now, there will be five grades, L1 to L5, with L1 being the highest. Above these levels, there will be executive directors, presidents and the managing director. The exercise has been completed only for the L1 and L2 levels.

“As part of the restructuring, we have also identified roles, which are best located in a central, common service structure, providing service across the company through optimised and efficient processes. To facilitate this, the number of roles distributed currently across the company is being relocated in the Global Development Centre in Pune. We expect significant benefits in cost, service quality and process efficiencies,” the spokesperson said.

Tata Motors is aiming to become a lean and agile organisation by empowering its business units with clear accountability, strengthening functional leadership and oversight, ensuring faster and effective decision-making, and improving customer focus, the company had said earlier.

Senior employees were made to undergo tests through an assessment centre, and sources indicate there has been considerable realigning of officers in different grades. Analysts say such an exercise is going to cut flab in a large organisation like Tata Motors and enhance accountability.

The company is going through tough times, as its third quarter consolidated profits fell 96 per cent to Rs 112 crore. It has lost market share in the domestic market, from double digits in 2013 to less than five per cent in 2017.

COMMENT ON THE STRATEGIC MOVE OF TATA MOTORS:

Tata Groups, the business conglomerate comprising of more than 100 operating companies spread across six continents, has come out with organizational restructuring to have a lean structure with obvious advantage of enhancing accountability and cost cutting at all levels.

Inspite of the co. being agile with greater flexibility and mobility with regard to performance, productivity, after sales service, customer satisfaction and so-on, may be this approach to amend the existing structure would bring a positive result, but definitely posing a threat and I feel the approach may put to test the human and social capital of the co., and the profitability as well.

This strategic move would definitely brings in cost advantage but we need to think on the functional aspect of all strategic business units located throughout the world where, the function of one SBU may overlap and blur into the role of another SBU causing some confusion, leaving fewer behind-the-scenes power struggles and disagreements.

Further, we can link this to the 7S Strategy of Mc Kinsey model which says, when  there is alignment of Cos. Strategy, Structure, System, Style, Staff and Skills to the super ordinate goals or shared  values of the co. it can lead to a sustainable growth and development.  The proposed change in the structure will be in place from 1^st April and we have to wait for the fruitful benefits to be reaped by TATA Motors.

Few examples of commonly used business restructuring strategies are listed here for further reading.

No business can continue to function in the same way forever. With changing times and changing business conditions, restructuring is one of the options for a business to stay on track.   Organizational restructuring involves making changes to the organizational setup. These changes have an impact on the flow of authority, responsibility and information across the organization.

The reasons for restructuring vary from diversification and growth to minimizing losses and cutting down costs. Organizational restructuring may be done because of external factors like merging up with some other company, or because of internal factors such as high employee costs.

1. Downsizing:

 Downsizing –   also called layoff, rightsizing or smart sizing strategy is about reducing the manpower to keep employee costs under control. (Ex:  Auto -giant General Motors, which in 1991 decided to shut down 21 plants and lay off 74,000 employees to counter its losses.)

Another example is that of IBM, which had never lay off staff ever since its incorporation, but had to lay off 85,000 employees to stay in business.   Downsizing is not always a result of business losses; it may be needed even in cases of takeovers, acquisitions and mergers, where duplicity of the staff propels this form of organizational restructuring.

2. Acquisition

The business being acquired undergoes major restructuring to get in-line with the organizational setup of the acquiring business. When AT&T acquired BellSouth, BellSouth was restructured to fit into the organizational setup of AT&T. And it wasn’t just BellSouth that was restructured, as AT&T too saw some restructuring to accommodate BellSouth. Altogether, AT&T had to cut down 10,000 employees over a period of three years, following acquisition of BellSouth.

3. Mergers

Also, when two businesses decide to merge together, organizational restructuring is a must to unite the two distinct organizations into one organization. When Glaxo Wellcome and SmithKline Beecham merged together to form Glaxo SmithKline in 1999, both the companies had to undergo major restructuring, and there was some major downsizing before as well as after the new company was formed.

4.       Star burst

This restructuring strategy involves breaking a company into smaller independent business units for increasing flexibility and productivity. This may be done either to dissect the business into manageable chunks or when the business wants to diversify and foray into unrelated areas. One of the latest examples of this strategy is Pfizer’s decision to spin off four non-pharmaceutical firms this year.

Star bursting may also be used for expansion of the existing business such as when a business decides to spin off subsidiaries to handle business in different geographic areas.

5. Verticalization

This is the latest in restructuring trends, wherein an organization restructures itself to offer tailored products and services to cater to the requirements of a specific industry. In 2002, HCL verticalized its operations to meet the specific demands of five different industries: retail, media and telecom, manufacturing, finance and life sciences. This type of restructuring opens up avenues for specialization.

6. De-Layering

De-layering involves breaking down the classical pyramid setup into a flat organization. The main objective of this type of restructuring is to thin out the top layer of unproductive and highly paid ‘white collar’ staff. General Electric has reduced the number of management levels from ten to four in some of its work facilities in order to improve overall productivity.   Hewlett Packard, on the other hand, has de-layered to promote innovation, build customer intimacy and  increase consumer satisfaction. The major advantage of de-layering is that the decision making process becomes shorter and more effective.

 

7. Business Process Re-engineering

This type of restructuring is carried out for making operational improvements. It begins with identifying how things are being done currently and then it moves on to re-engineering the tasks to improve productivity. Business process re-engineering usually results in changing roles. While at times BPR may lead to layoffs, it can also create new employment opportunities.

When Ford Motor was trying to reduce its cost, it found that the process at its accounts payable department needed to be re-engineered. The reengineering helped in simplifying the controls and maintaining the financial information more accurately, that too after laying off 75 percent of the staff from the accounts payable department.

8. Outsourcing

Today’s businesses prefer to outsource some of their processes to other firms. There are two ways outsourcing benefits a business; first, it helps in reducing costs and second, it allows the business to concentrate on its core business and leave the remaining tasks to outsourcing firms.  Whenever a business plans to outsource one of its processes, it will cause some major restructuring and reshuffling within the company. Downsizing is common when a business outsources its processes. For instance, Nokia plans to lay off 4000 of its employees by the year end 2012, as it will be outsourcing the production of its Symbian operating system.

9. Virtualization

Virtualization is the last on our list of restructuring strategies. This strategy involves pushing employees outside the office to places where they are more needed like at the client’s site. It also involves upgrading to technology, which allows unmanned virtual offices to be set up. For example, the ATMs offered by banks are their virtual units.