Hard Knocks on a Software Company

Abstract

This case is about the manner in which a small but profitable software training company in Mumbai made redundant half its employees in three rounds of layoff. The company was doing well and growing in both size and reputation for corporate IT training. But the sudden unanticipated dotcom bust in 2000–2001 checked the progress of the business. The case describes the way the owner-promoter dealt with the challenge.

The case will help instructors who wish to teach their students about persuasion, delivery of bad news, and managing human resource under difficult circumstances. Thus this case is extremely useful for teachers of managerial communication, organisational behaviour, human resource management, and general management.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Resources

Appendix: Reflections by Downsizees and Survivors

Note : The views given below were taken from either interviews or email communication with some of Pragati’s former employees (some who were laid off in May 2001, and some who left later on their own for better prospects elsewhere) and some current employees. The quotes have been mixed up at random to protect the respondents’ identities. Although given in quote marks, the text is not a verbatim reproduction of what the respondents said or wrote. It has been compressed, and edited for the sake of brevity and/or to protect the identity of the respondents. The meaning and tone have, however, been retained.

“The layoff was not at all essential. The company had cited hostile market condition as the reason for layoff. But that can’t be quite true. How can the company go on recruiting in hordes one month and then ask them all to leave the next month? There was obviously more to it than just market conditions.”

“The layoff was essential – for Pragati’s survival.”

“Mr. Sharma didn’t have a choice.”

“Mr. Sharma did not ask the employees for any suggestions to avoid layoff.”

“The company laid off people systematically, applying certain criteria. People whose skills were not immediately required were laid off. But the criteria were not quite fair.”

“The selection of employees for layoff was fair. Mr. Sharma attempted full transparency in explaining to us the real causes of downsizing. Some might, however, think that it was selective transparency.”

“When I was asked to leave, I was satisfied with the way I was treated.”

“I was totally unprepared for the layoff announcement. I had no inkling it was coming.”

“I accepted my layoff quietly because fighting or arguing was pointless.”

“Yes, the company did give some compensation and settled the dues right on the day of the layoff. But the compensation was too little. The company could have given the employees working notice, and helped them find other jobs, and generally kept in touch with them as a gesture of moral support.”

“The three things an employee being laid off expects from an employer are sufficient notice, compensation, and moral support. The company gave us all these.”

“Those who were laid off were treated with dignity and respect.”

“The company culture is open. All are aware of what’s happening.”

“If the company calls me back, I’m very unlikely to go back. I’m not sure whether I’d advise my friends or relations to join Pragati if they get an offer – I will always worry that what happened to me will happen to them as well.”

“I won’t go back to Pragati if they call me now because I have a very good pay package now.”

“I think the company wasn’t making enough money to pay back the huge loans it had taken. The company’s planning was not good. A company like Pragati should have enough reserves to go on for at least one year even if market conditions are hostile.”

“I was a victim of the company’s inability to understand its strength in the market and market conditions.”

“The selection (of who should go and who should stay) was fair. But the criterion was not performance. Mr. Sharma retained those he felt were loyal and likely to stick around. He sent away those who were new and were drawing a high salary.”

“The layoff could have been avoided if Pragati had a contingency fund or some buffer fund to take care of salaries for 4–6 months. But the layoff came at the right time. Any delay would have led to the closure of the company.”

“The selection of who should go and who should stay was fair. Poor performers and those who had not been with the company for long were asked to go first.”

Exhibit 1: Pragati’s financial performance: Highlights

1999–2000

2000–2001

2001–2002

`

`

`

Total Sales

5,257,495.35

10,855,871.07

7,966,626.00

Salaries

1,813,899.71

3,547,213.25

3,144,248.00

Other Expenses

2,069,515.10

4,316,731.02

4,231,698.54

Profit Before Tax

1,374,080.54

2,991,926.80

590,679.46

Source: Company records

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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