Rightsizing or Downsizing–A Story of Dell

Introduction

One fine day Mr Amit Malhotra, Senior HR Manager, Dell International Services (DIS), Mohali was sitting in his office in a pensive mood after getting a call from his superior Mr. Bharat Bhushan, Head HR Dell India Limited (DIL).

"We have decided to close the Dell International Services (DIS), Mohali Office in a meeting with top management. The decision has been taken unanimously after looking at consistent adverse market conditions resulting in losses in the last three-quarters of DIS, Mohali. Now, the company is left with no other option but to close the operations at DIS, Mohali. Now, it's your job, to execute this decision and handle the entire situation amicably without any harm to our company's reputation. I am sending an email sent by Mr. Keanu Thompson, Chief Human Resources Officer (CHRO), Dell Global."

‘It would be indeed a tough task,' Amit mumbled to himself as he sat on his armchair. He was perplexed and indecisive about how to execute the decision of top management. How to give this news to employees? How to handle the employee’s reaction after hearing the announcement? How to handle the separation process?

Personal Computer Industry 

The sales of personal computers (PCs) were plummeting. The last two years were very tough for the personal computer industry. The acceptance of smartphones and tablets as a key computing device by customers has led to substantial shrinkage of the market for personal computers. The industry's revenues decreased because of the decline in PC sales, which eventually had an impact on its earnings. It even raises concerns about their ability to remain in the market given that their industry rivals are already fighting for razor-thin margins that are declining quickly. Experts even expect that in the upcoming year, demand in the PC market will continue to decline.

A lot of company mergers broke up, and a small number of them ended in closure as a result of the PC industry's terrible status. Businesses such as Hewlett-Packard (HP) split into two distinct entities in an attempt to revive their faltering businesses. In a similar vein, Sony also became aware that their gains were steadily turning into losses. As a result, after seventeen arduous years in the sector, they decided to leave the PC company. Many PC industry players, including Microsoft, IBM, and others, have realised that, to survive, their business models need to adjust to accommodate changing conditions.

Challenger, Gray & Christmas, Inc., a renowned placement firm did a study on layoffs that have happened in the PC industry over the past two years, and the results were quite shocking [1]. Around 59,528 jobs were laid off whereas in the previous year, somewhere 32,136 positions were laid off. It indicates an escalation of 69 per cent in the layoffs for the two years which is vast in number. 

Dell: Company Background

At the tender age of nineteen, Mr. Johnson Page, the company's creator, founded Dell under the name PC's Limited with just a few thousand dollars. He had a vision of completely transforming how technology will be designed, produced, and vended. He renamed the corporation to Dell in 1984 while he was a first-year student at the University of Texas, Austin. He purposefully abandoned his dorm at the university in order to advance the business. 

In the midst of 1985, he and his team successfully designed and constructed their first computer system which was called a 'Turbo PC.' He brought a revolution in the computer industry by creating a consumer experience that completely sets them apart from their competitors. They came up with the idea of risk-free returns in addition to assistance for the product at home. In the year 1986 at the Spring Comdex trade show, they introduced the market's fastest personal computer. In the United Kingdom, the first subsidiary of Dell came into being internationally in 1987. The company went public in 1988 and changed its name to Dell Computer Corporation and extended its products, over and above, its global presence using the newly attained funds. Slowly and steadily, Dell made it to the top five computer producers globally. In the race to secure the first position, the company targeted the unexploited souk, i.e., the network server. The company started selling online and expanded its global operations in the late 1990s. Finally, the company became the best computer systems producer in the world. Dell speeded up on its long-term progression strategy. The company came into being as an eccentric PC startup and now has turned into a global technology spearhead. The company has continually been following its legacy of a dogged vow to the customer. At present, the company is gearing up to become the world’s foremost IT (Information Technology) infrastructure company.  

Swot Analysis

Dell, like other companies, has its strengths and weaknesses. As a market leader, it excels in both the public and private sectors, particularly in product customisation and direct selling business models [3]. It has been recognised as a top healthcare service provider for six consecutive years. Dell faces weaknesses in customer services, patent portfolios, retail locations, etc. Reliance on suppliers and low differentiation also poses challenges. Opportunities lie in expanding services and enterprise solutions businesses, strengthening presence in emerging markets, obtaining more patents through acquisitions, etc. However, Dell is not immune to threats such as growing demand for smartphones, slowing down of the laptop market, intense competition, etc.

History of DIS, Mohali

The government of Punjab and Deputy Chief Minister(CM), Mr Sukhbir Singh Badal, decided to call for a summit that attracts substantial investments for the Punjab state. The summit proved to be a success. It has magnetized exciting ventures from the top honchos of the nation's service and IT (Information Technology) sectors (Indo Asian News Service - IANS). The deputy CM announced an investment of Rs. 6,50,000 million approximately will be made in the state by the summit (IANS) [4]. For instance, a critical IT industry, Infosys, declared that they are planning to invest an amount of Rs. 4250 million to come up with their primary centre in Mohali (IANS) [5]. Similarly, Dell, the world's second-largest PC maker, with a total valuation of $4 billion approximately planned to open a centre for international services in Mohali, India [6]. Research and development (R&D), IT applications, and sales & manufacturing are a few other businesses of Dell in India which earned Dell revenue of Rs. 18,000 million in the year 2007. Dell's services and support section were taken care of by DIS. DIS has been operating in various countries namely the Philippines, America, India, Canada, and many more. Especially in India, DIS had offices in Noida, Bangalore, Gurgaon, and Hyderabad and employed around 15,000 employees. In 2001, DIS initiated its business in India and was the most significant Dell centre after US Dell centres [7].

In 2005, the corporation opened its Mohali centre near Chandigarh [8]. The centre’s purpose was to provide technical help and customer care to US consumers. The town's young graduates were given significant employment prospects by Dell's Mohali facility. Johnson Page, the CEO of Dell, travelled Mohali to officially open the new facility. With about 1,300 workers, the business was regarded as the strategic branch of the global service delivery network.

The Major fall off: Going Private 

After a quarter-century in the stock market, Dell found itself compelled to pursue a buyout due to the rapid decline of the PC market. Faced with this challenge, Mr. Page recognised that transitioning to a private company was the optimal path for securing a promising future for Dell. He kept on convincing his investors to go private to restructure Dell which can take the company away from the downfall. He kept traveling worldwide to reassure the whole world that the company was doing business as usual. 

Finally, Dell was acquired entirely by Mr. Page and Silver Lake Partners, one of the leading global technology firms[9]. As per the merger contract, the company shareholders received $13.75 in cash for every share in addition to $0.13 per share as an extraordinary cash dividend which made a total of $13.88 per share in capital. So, the company made a deal of $25 billion to take itself private.  

This buyout was considered one of the biggest of its kind and was extremely risky for Dell during the recession time [10]. This buyout decision had further burdened the company with a new debt of $15 billion which nowhere helped in averting the forces that had remodelled the technology industry and weakened Dell's business. The financial results of Dell for the second quarter of the year were shocking for Dell. The net income fell by 72 per cent whereas the $14.5 billion revenue was found to be flat year over year. 

Dell, Mohali: Scenario

DIL globally was undergoing significant retrenchment and attrition continuously as the company's captive units across India, Philippines, El Salvador, and Canada were incurring losses [11]. The leading newspapers highlighted that Dell might restructure its Indian operations (in Bangalore, Hyderabad, Mohali, and Gurugram) to make it more viable and sustainable. There were rumors that Dell would soon shut down the Mohali centre and exit their captive operations i.e. BPO services. The news rushed the panic waves among the employees at DIS, Mohali. They got worried about their future in the organisation augmented with running speculations about the closure of the organisation.

On the next day, employees approached Mr Amit to gain clarity and assurance about their future in DIS. Mr. Amit assured his employees that the company values its employees and will always protect their interests in every situation and advised them not to trust any such rumours going in the media. After having an interaction with employees, he got back to his work.

Suddenly, his phone rang, and he picked it up and found that the call was from Mr Bharat Bhushan. He briefed Mr. Amit about the company's decision to close the DIS, Mohali centre, and asked him to initiate the process as early as possible. He also hinted at him to ensure no harm to the company's reputation and handle the entire situation cautiously. Mr. Amit was tensed sitting in his chair trying to digest the news he received from his boss. His mind was baffled surrounded by unknown apprehensions regarding employees' reaction to the story of the closure.  How will I communicate this news to everyone? What will be their reactions? How to initiate this task? Mr. Amit left for his home in the late evening after thinking about the various ways to carry out retrenchment activity.

In the next few days, Mr. Amit worked out and strategized the entire plan to be initiated and made necessary arrangements for its smooth execution. Mr. Amit put on notice stating that "The Mohali centre is permanently shutting down with immediate effect and from now onwards entire business of DIS; Mohali would be shifting to other Dell centres in India. This decision is part of our company's global rightsising efforts. The company would like employees of DIS, Mohali to opt for shifting to other units of the company having suitable job vacancies or separate voluntarily. In an unfortunate event, the employee not being able to find a suitable job option in another organisation nor ready to relocate. The DIS will be constrained to separate such an employee unilaterally. All the employees are supposed to give their choices to the designated officer within two weeks."

The employees after getting news of the shutdown raised slogans against the authorities as most of the employees were working since the inception of DIS, Mohali. One of the team managers says, "It is unexpected that the authorities will take such an extreme step without any prior intimation." Another employee says "We were always ensured that no shutdown of the unit will ever take place despite the existence of the rumors.After a thoughtful discussion with each other, the employees decided to go on strike. The employees stopped working and raised slogans against the management to show their agitation and anger. The strike went on for five days putting the entire organisation's work on hold. 

Mr Amit was aware of the expected reactions of the employees. He had made all prior arrangements, essential to safeguard and protect the company premises. The government took note of the situation and appointed a mediating officer, Mr. Surinder Batra to take charge of the case and resolve the issues as early as possible.  Mr. Surinder met Mr. Amit and representatives of the employees to resolve the matter amicably to show his willingness to mediate the issue. Amongst, all the chaos and confusion Mr. Amit and representatives of employees decide to fix up a meeting mediated by Mr. Surinder to resolve the matter put an end to the strike and restore peace. The meeting went on for a few hours under maximum pressure and a state of ambiguity involving negotiations between both parties. Finally, both parties reached a consensus and decided to resolve the matter amicably.

Mr. Amit made concluding remarks to striking employees saying, “We value our employees and would like to continue your employment with the company. However, if you choose otherwise, we will respect your decision and offer a golden handshake to all of you. We care about you and understand your concerns. You all have to give your choices in two weeks to wind up the entire process in a stipulated period. Even we will be there to help people in getting relocated and getting new jobs.”

Mr. Amitwas rolling in his armchair after the meeting and was feeling comfortable with a sigh of relief that he was able to manage the task assigned to him by the management. He said to him, "It was indeed difficult for me to implement the decision of closure of DIS, Mohali. I deliberately offered the employees to either opt for a 'relocation policy' or 'quit.' It was a terrible situation to deal with, but in the end, I made it and came out brave. As rightly, said fortune favours the brave.

References

1. Challenger, Gray & Christmas, Inc., available at: 

http://www.challengergray.com/press/press-releases/2014-december-job-cut-report-32640-cuts-top-lowest-job-cutting-year-1997(accessed 11 January 2024)

2. “Dell – What we value”, available at: 

http://www.dell.com/learn/us/en/uscorp1/purpose-and-values(accessed 16 January 2024)

3. Jurevicius, O., “SWOT Analysis of Dell 2023”, available at: 

https://strategicmanagementinsight.com/swot-analyses/dell-swot-analysis/ (accessed 2 February 2024)

4. Kalia, M. “Investment: good start but summit far”, available at: 

https://www.hindustantimes.com/chandigarh/investment-good-start-but-summit-far/story-SSMbcmzV9itzSz3Yc1Gh3K.html (accessed 29 January 2024)

5. “Infy to invest Rs 900 cr on Mohali and Nagpur campuses”available at:

https://www.deccanherald.com/business/infy-invest-rs-900-cr-2178184 (accessed 29 January 2024)

6. Anand, S. “Michael Dell to open third call centre in Mohali”, available at: 

https://timesofindia.indiatimes.com/michael-dell-to-open-third-call-centre-in-mohali/articleshow/1054106.cms?from=mdr (accessed 29 January 2024).

7. “Dell's designs”, available at: 

https://www.businesstoday.in/magazine/features/story/dells-designs-128295-2008-09-18 (accessed 30 January 2024).

8. “Dell Announces Closure of Mohali Facility With Nearly 1,000 Employees”, available at: https://gadgets.ndtv.com/laptops/news/dell-announces-closure-of-mohali-facility-with-nearly-1000-employees-533178 (accessed 23 January 2024)

9. “Dell is now a private company”, available at: 

https://www.dell.com/learn/in/en/incorp1/corporate_secure_dellwebpage/acq-dell-silverlake (accessed 31 January 2024)

10. “Dell profits dip 72% on sluggish PC sales”, available at: 

https://www.deccanherald.com/business/dell-profits-dip-72-sluggish-2277578 (accessed 31 January 2024)

11. “Accenture, Wipro eye Dell's non-US BPO business”, available at: 

https://economictimes.indiatimes.com/tech/ites/accenture-wipro-eye-dells-non-us-bpo-business/articleshow/2440892.cms (accessed 1 February 2024)