CASE OVERVIEW Valley Technology Inc.

is a part of the computer storage industry that initially offered a tape drive portfolio of products, which provides backup and recovery capabilities, and it has recently introduced a network attached product which is dedicated to file sharing only. The company encountered dilemmas regarding the most appropriate alternative that would be best to resolve their plan of reducing the companys overall cost, specifically with the tape storage division. The top management has decided to conduct a reduction in force (RIF), which would constitute an involuntary turnover. Before deciding on the final list of the employees who would be laid off, the divisions managers assured that they followed the selection criteria, and the list was subject to a legal review before implementing the lay-off. This strategy is beneficial for the company to continue with its operations efficiently and effectively which would enable it to attain profitability; however the company needed to practice open communication with regards to such matter in order for the retained employees to perform well and to move forward from such issue. I. Statement of the Problem How will Valley Technology Inc., specifically its tape storage division, deal with the cost reduction in its workforce with regards to maximizing profitability and preventing any involuntary turnover in the future? II. Objectives
1. To determine several alternatives that would help alleviate the possibility of

involuntary turnover in the future 2. To know the significance of technology in todays market 3. To know the impact on how unionization of the workforce will affect the company 1

4. To strengthen the essence of open communication in the workforce

5. To know the impact of downsizing with regards to certain legal aspects

6. To be able to find ways on how to exceed excellence in the workforces

performance and maintain the workforces morale III. Areas for Consideration
1. Nature of the Industry Valley Technology Inc. is a company which

specializes in computer storage devices, specifically offering a tape drive portfolio of products which provides backup and recovery capabilities to secure the data of the organizations needing it as the company begun in the earlier years. It entered the market in 1992 during the dot-com boom and it went public in 1998, in which its stock prices value increased. In the latter part of its existence, the company has been providing a variety of product mixes in the market, such as a network attached product which is dedicated to file sharing only. The company needed to adapt with the advancement of technology in the market. In response to this, the organization created different products in order for the company to maintain its profitability and gain competitive advantage.
2. Organizational Culture Historically, VTIs organizational culture has been

employee-friendly. The company values the relationship with its employees and it gives much importance to its employees welfare. One justification for such is that it provides private pension plans to its employees. Giving such retirement benefit establishes a strong base for building retirement security for its workforce. As the companys workforce grew, VTI leaders have been able to re-skill and shift to cover hot and future projects, therefore reducing the possibility of any reductions in its workforce. Identifying and understanding the culture of an organization is a difficult task, which requires analytical skills, understanding the organization, and possessing the knowledge of organizational theory, combined with a 2

great deal of effort. However, it is an even more difficult task to overcome cultural resistance while trying to control and reduce costs. Source: (http://ejournal.unud.ac.id/abstrak/putu%20sudana.pdf) The company must look at its foundation, specifically at its culture that governs how members behave. In identifying a cost reduction strategy, the senior human resource director of the tape storage division, Jan Ricter, must develop a strong and efficient culture, while minimizing the destruction of values because of reducing too much human resources. In circumstances wherein the organizations management would want to relay any significant notices, especially the ones dealing with workforce reduction, it should do so in a way that it would give much attention to the organizational culture practiced by the company. Relaying the significant information the right way would minimize any misunderstandings with the workforce.
3. Unionization of the Workforce Unionization is a process where employees

concerns are raised so that the companys management will be able to resolve any issues. The members of the union conspire with each other to voice out their rights and to protect themselves from unjustifiable or unreasonable decisions of their bosses. Due to the unionization of the workforce, the employees who are part of such have the freedom to initiate any actions which would help them voice out their concerns. An instance for such is through threatening their bosses that they would initiate a strike if their needs are not properly responded to. Despite such threat, the employees who are part of the union would not think twice to initiate such action since they know that they are protected by their membership in such union. A companys unionization would enable the top managers to know the majority of its employees needs. Knowing their employees needs would give the top management ideas on what should be done in order to cater such needs, therefore implementing actions to respond to those needs. This will 3

enable the company to maintain a harmonious relationship in the organization which would result to employee satisfaction in its workforce. The satisfied employees will be able to do valuable works and give good outputs that would enable the company to have a high profit margin.
4. Communication Techniques The goals of the company should be relayed to

the employees in order for the workforce to know and understand the specifications of the job, such as what to do, how to do such, why it should be done, when it will be done, and where it will happen. Employees who are aware of the organizations goals would know what to contribute since they recognize the plan of the company. If the goal of the company is to reduce its workforce, contented employees might volunteer themselves to retire. These contented employees may be old aged employees who have already reached self-fulfillment. In addition, if the company would be able to communicate its goals well, the employees who are aware of such goals would be able to strive and work hard in order to prove themselves. In relation to this, if the company plans to reduce its workforce and possibly would lead to an involuntary turnover, the employees who are aware and consciously do not want to be part of the layoff, would be able to work hard and prove that they deserve to stay. This action would certainly minimize complaints from the employees. However, if the companys last resort would be to lay off employees, the company may help the laid off workers find opportunities outside the company. One concrete way of doing such is by helping the laid off workers find new jobs through outplacement counseling. However, this can only occur if the company has such program. Having an efficient and effective communication technique would foster an open environment that would minimize the possibility of the employees to think badly against the company, if unfortunate circumstances will occur. 4

Doing this minimizes the possibility that the employees would take revenge or commit workplace violence in the companys facilities and reduces the possibility that the organizations image and reputation in the market would be tainted.
5. Legal Aspects The government has many laws and regulations concerning

the treatment of employees. Laws govern such matters as equal employment opportunities, employee health and safety, employee pay and benefits, employee privacy, and job security. In discharging employees, decisions should be based on certain legal aspects that could possibly affect the organization. An issue that is prevalent with regards to the legal aspects is concerning the emergence of implied employment contracts. The law states that if employees meet certain criteria such as the length of employment, promotion, raises or favorable performance appraisals, adhering to such would be justifiable to secure the employees job security. Moreover, the organization must develop a standardized and systematic approach to employee discipline. In cases in which the company needs to discharge its employees, it should have a code of conduct which would be based upon in such special circumstances, since these involve legal dilemmas. Moreover, the organization should handle such situations more objectively and fairly. The law gives employers wide latitude in hiring and firing, but employers must meet certain legal requirements. In connection, they must avoid wrongful discharge and illegal discrimination. They must also meet standards related to employees privacy and implement an adequate notice of layoffs if such event will arise. The policies that can lead to employee separation should be based on the principles of justice and law, such that they should allow various ways to intervene, depending on the circumstances. 5

6. Products in Line with the Business Specifically with the Tape Storage Division
6.1. Tape Storage Tape storage or magnetic tape is an information storage

medium consisting of a magnetisable coating on a thin plastic strip. Nearly all recording tape is of this type, whether used for video with a video cassette recorder, audio storage (reel-to-reel tape, compact audio cassette, digital audio tape (DAT), digital linear tape (DLT) and other formats including 8-track cartridges) or general purpose digital data storage using a computer (specialized tape formats, as well as the abovementioned compact audio cassette, used with home computers of the 1980s, and DAT, used for backup in workstation installations of the 1990s). Source: (http://www.wordiq.com/definition/Tape_storage)
6.1.1. Uses of Tape Storage As companies save more and more data to

comply with industry or government regulations, tape storage is taking on the additional role of being an archiving media. Playing such an important role, procedures for how data is backed up to tape are critical.

One area that companies are focusing on is automation. Performing daily and weekly backups often requires multiple tapes. Source: (http://internet.ziffdavisenterprise.com/hpstorageroom/techbriefs/HPT B1_v4.pdf) In addition, it is used as backup/restore; disaster recovery; archival/data preservation; and content acquisition/distribution of files.

Source:

(http://webcache.googleusercontent.com/search?

q=cache:p2gieuINKXUJ:findarticles.com/p/articles/mi_m0BRZ/is_5_2 3/ai_103731251/+importance+of+tape+storage&cd=1&hl=en&ct=clnk &gl=ph)

6.1.2. Importance of Tape Storage Businesses might do a backup of the

days transactions daily and a backup of the whole system once a week or so. Keeping sets of backups like this minimizes the amount of data loss when the computer system goes down. Storage of backup media and computer backups is a necessity in situations where corporate liability and culpability are concerned. As backups that are stored off site are a time and date point of where information was created, exchanged or even deleted, the backup tapes stored become even more important if something is deleted, either by accident or design. These tapes are removed from storage and sent to the enterprises clients where they can retrieve important databases, e-mail, or other documentation. It is also the most costeffective, flexible and scalable medium for high-capacity storage backup. There is less of an initial investment than other formats and tape is easily transportable for outside sharing. Source: (http://www.archiveamerica.com/tape-storage.htm)
6.2. Tape Storage Division The tape storage division of VTI plays an

important role in the company since its primary duty is information management such as storage, back-up, and preservation of the companys data. Conversely, the unit has been wrestling with unforeseen sales in a certain period, as its stock price would abruptly drop. Its market has not been as productive as to how it was in the earlier years. Its operations has declined, which has become evident from its sales records and such. 7

In addition, the company decided to reduce the number of employees in the department because human supervision is not that needed in the stated area, given that the work activity for such focuses more in technology. 7. Performance Management Performance management is the process through which managers ensure that employee activities and outputs contribute to the organizations goal. Source: Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2008). Fundamentals of Human Resource Management, Second Edition. 1221 Avenue of the Americas, New York: McGraw-Hill/Irwin. Ensuring that performance management is properly practiced by the organization will certainly contribute to the effective attainment of the organization's goals. The organization should evaluate and monitor its employees performance to make sure that the employees outputs fit with the organizations strategy. In addition, the organization should make sure that its performance management system is valid, reliable, and acceptable to the organization, which should also give employees specific feedback. An organizations performance management system may result in laying-off or involuntarily reducing potential employees if not managed well. An instance for such is the possible emergence of errors in rating. However, if the organization cannot find a better alternative aside from layoffs or involuntary turnovers, it should make sure that the need for such involuntary turnover is well explained. Moreover, the procedures for carrying out such should always be fair.
8. Morale of Employees The morale of employees who remain after the

reduction would be another challenge that the management should consider. Survivors may either feel guilt over keeping their job when their friends were 8

laid off or they may envy their friends who retired with attractive severance and pension benefits. Their reduced satisfaction and lowered commitment to the organization may interfere with their performance of their work. In this case, practicing an open communication in the organization would be effective in order to build trust and commitment between the management and the remaining workforce.
9. Human Capital Cost Savings Strategies Discussed Jan Ricter, the senior

human resource director for the tape storage division, encouraged her team to consider a number of different strategies to reach the budget cost target, while avoiding an involuntary reduction in the departments workforce. Such strategies include early retirement, voluntary leave of absence, redeployment, standardized unit-level cuts, and reduction in force (RIF). Before deciding on which strategy to employ, it would be best for the team to discuss each strategy and present its strengths and weaknesses so that they would know which approach is the most appropriate. Having a good discussion, thereby choosing the best strategy would help the company reduce its costs and produce a favorable outcome for its employees.
9.1. Early Retirement Packages Early retirement packages involve offering

attractive incentives for employees to leave the organization. This option is effective in cutting costs in the long term, but expensive in the short term. However, providing such benefit to the employees would result to the decline in their commitment to the organization and performance, because the employee anticipates leaving the organization with an attractive severance package the next time one is offered. In the case of VTI, the tape storage division lost 79 employees primarily through providing early retirement packages during the first time the company experienced a reduction in force. Source: (http://www.shrm.org/Education/hreducation/Documents/Valley %20Technology%20Inc._Final.pdf) 9

9.2. Voluntary Leave of Absence (VLOA) Allowing employees to have a voluntary leave of absence needs a lot more thought, as employees will consider the implications to their lifestyle and social stigma of being jobless. VTI, however, allows employees to take a leave between six months and one year, but this approach is a short-term strategy. Hence, this leaves the company to go back to their organizational issue which is the solution to its cost reduction. 9.3. Redeployment Redeployment means transferring a number of the employees from the tape storage division to other VTI units. An advantage for such action is that the organizations knowledge would be retained in its workforce since VTIs employees will remain in the company. In addition, redeployment results to a cost savings strategy for the company.
9.4. Standardized Unit-Level Cuts The organizations executive committee

thought of reducing each managers costs in the unit by 20 percent. This is actually cost-effective and it leaves the decision and implementation for such administrative process to each managers discretion.
9.5. Reduction in Force (RIF) Reduction in force is the least attractive option

that VTI has attempted to avoid, because this option requires making difficult decisions and delivering difficult messages. However, there are almost always some unexpected and undesirable outcomes from a RIF. Some of these outcomes are the temporary loss of organizational efficiency due to many people moving into new jobs at the same time, low employee morale, high one-time costs in unemployment compensation, lump-sum payments for accrued annual leave, and severance pay. Source: (http://www.doi.gov/hrm/pmanager/st16.html)

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IV. Alternative Courses of Action

A. Giving Projects in Line with the Employees Job Description. The problem

states that it aims to attain profitability and avoid involuntary turnover. This could be obtained by giving out projects to the employees who are within the department. Not only will these projects utilize their skills, but they would also maximize profitability that would be an advantage for the company. Such projects that will be given must be in line with the employees job description to avoid any legal cases against the company. For instance, since todays technology would pertain to a fast-changing technological environment in the industry, the company can reside to a decision which could challenge the people within the department to create a more convenient and less expensive tape storage that is more likely to be saleable nowadays. Such alternative would not make them idle and futile rather, it would utilize their skills and practice them with regards to their expertise. Moreover, it would be beneficial for the company if the newly defined product will be saleable in the market, thus attaining higher revenues and shares. Consequently, instead of using the money to reduce their human capital cost in the department, the money allotted for such can be made use for the project that would hopefully prevent any declinations in the companys profit. In addition, if the employees cannot bear with the projects, which will be in line with the specified job descriptions upon employment, the employees can voluntarily leave the company. Thus, it would be less costly, monetarily and legally, for the company to keep up with the legal compensations, based from their codes of conduct, which must be rendered to the employees who would want to resign. Voluntary turnover could take place, but having lesser monetary cost, in connection with the companys aim to reduce human capital in the department. Consequently, if the projects that the company would forego will fail, then it would be a loss on the companys monetary allotments, for instead of being able to save and maximize profit, it would jeopardize the 11

companys assets in a way that losses might occur if success will not be achieved.
B. Redeployment. As mentioned in the case, the company wants to legally

reduce its human capital without jeopardizing their assets. If the company decides to redeploy the employees in the specific department, or in the tape storage unit, to another unit, not much cost will occur and be acquired. Key employees in the tape storage unit could remain as is, but the other employees who have high job deficiencies and low productivity within the unit, based from their performance appraisals, can be redeployed to other units in VTI which can help boost their capabilities, and increase their job efficiency based from the human resource managers evaluations. Before doing so, good communication must be conducted within the department in order to avoid any false allegations regarding the main concern against some personal issues. Another, such action would disregard the employees severance pay, and it would be to the companys advantage, for cost reduction will be fully attained. Not only will the company be able to aim its goal by reducing costs within the tape storage unit, but it would also be an advantage for both parties in a way that idle human capital or merely human capital that are qualified to other units will be able to make use of their other skills and certain capabilities, and may even discover a new skill in line with the new deployed unit that they will be transferred to, which will give them an edge in addition to their value, thereby maximizing the companys profit. In addition, if the employee is dissatisfied with the job upon redeployment, the employee can voluntarily resign and leave the company, which will also be less costly on the companys part for not much monetary compensation will be needed, and cost reduction in human capital will be attained. On the other hand, it is evident that such action may resolve to an employees job dissatisfaction. Hence, if the employee which was redeployed to another unit is skilled, and would show competency and increased job efficiency 12

but would be personally dissatisfied with the companys resolutions, it would not be beneficial to the company for the key employee could suddenly resign and it would be a loss on the companys behalf.
C. Cost Reduction within the Unit Based on New Implementations. Acquiring

and formulating new implementations for cost reductions such as having standardized cuts for production, pay reduction, reduce in working hours, and capping overtimes may help reduce the companys costs, but must be open to the employees. Instead of conducting involuntary turnovers in the units employees to reduce human capital costs, the company can consult with its accountants to seek for the plausibility of reducing the employees pay, including the units heads and standardized cuts on production by having a certain amount of produce to be generated, depending only on its demand in the market. Such cuts would help provide leverage over the companys losses that were incurred. Reduction of working hours, and alleviation of overtime could also help reduce the companys cost in terms of employee pay. But before implementing such reduction on working hours, the company should take working operations into consideration. Sales have not generated a high approach at such period, so in that certain period, the company can implement the cuts with regards to its working hours in the department, or depending on their decision regarding the period of its cuts. It is the companys prerogative to have such implementation if and only if financial records were, carefully and thoroughly, studied and considered. All of these should be open to the employees, and good conduced notifications must be sent to them which would make them aware of the companys activities and decisions to avoid legal matters that would come up. If employee dissatisfaction will occur, it would still be an advantage for the company because less cost will be made. Then again, implementing such aspects for cost reduction may evidently lead to employee dissatisfaction. If a key employee will voluntarily leave due to the circumstance and due to certain aspects, 13

especially the decline in salary, it would be the companys disadvantage or loss for it would be difficult to find another occupant to filter the specified job for the vacant position.
V. Recommendation

Human capital refers to the stock of competences, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience. Many early economic theories refer to it simply as workforce, which is one of the three factors of production, and consider it to be a fungible resource -- homogeneous and easily interchangeable. According to Adam Smith, human capital is the acquired and useful abilities of all the inhabitants or members of the society. He further explained that the acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital, fixed and realized, as it were, in his person. These talents, as they make a part of his fortune, so do the talents likewise that of the society to which he belongs. Moreover, human capital is an intangible asset as it is not owned by the firm that employs it. It is basically a way of defining and categorizing peoples skills and abilities as used in employment and otherwise contributes to the economy. Valley Technology Inc. strongly believes that its human capital is an asset to their organization. VTIs CEO, Bob Cuellar consistently tells the employees, shareholders, and the press that VTI is successful only because we have the most talented, well-trained, and rewarded employees in the industry. This entails that the human capital in Valley Technology Inc. is a valued investment for the company. The organization trains and gives compensations and benefits to its workforce, which in turn would benefit not only the employees but the organization as well. Training is an organizations planned efforts to help 14

employees acquire job-related knowledge, skills, abilities, and behaviors, with the goal of applying these on the job. Organizations conduct training programs to teach skills and behaviors to participants that will help the organization achieve its goals. The workers compensation benefits include their income, medical, rehabilitation, death, and survivor payments to those workers who are injured on the job. Compensations and benefits are merely given to employees who have given a fair amount of service to the company. Consequently, the companys culture has historically been very employeefriendly. For instance, VTI gave private pension plans that were quite extinct in the society, before the incoming 2005 employees. This benefit retirement plan was intended to provide a strong base for building retirement security for VTI employees. In addition, this plan was 100% funded by the company. In 2005, the employee benefits were replaced by a better plan which was a voluntary program and valuable savings source for employees future financial needs. Currently, Valley Technology is faced with a dilemma of the need for overall cost reductions. This was brought about by the fierce competition, inappropriate product mix or focus, and misaligned sales force incentives which resulted to the decrease in revenue and market share. To regain from such loss, the management believes that the product mix must adjust to the decline of classic products and shift from it, yet this would entail that the management would also shift in human capital expertise. This would denote that the tape storage division must reduce human capital costs by approximately $20 million per year. The proponents of the study choose option B, which is redeployment, provided it would resolve the dilemma which the Valley Technology Inc. is faced with. Since VTI values its employees, the best course of action would prevent involuntary turnovers in the future, hence maximizing the companys profitability. The company wanted to legally reduce its human capital without jeopardizing 15

their assets. This course of action would bring a long term success to the organization, such that the morale and performance of the employees who will remain after any reduction in force would be maintained, thereby avoiding any possibility of having poor results in performance. Redeployment occurs when the management would move or allocate an employee to a different position or division. In the case of VTI, redeployment would mean that employees from the tape storage unit may possibly be redeployed to other VTI units, which would need a bigger workforce. This option would be the most cost efficient means of meeting the targeted reduction since redeployed employees are immediately taken off the tape storage unit books with no severance package. A severance package is a type of pay, which benefits an employee who will receive such when the employee leaves the company. Typically, severance packages are offered to employees who are laid off or retired to prevent an employee from working for a competitor and waive any right to possibly pursue a legal claim against the former employer. Since a separation agreement would not be provided to redeployed employees, VTI could be able to reduce its costs by slacking themselves from expenses that could have been set aside for severance packages. Not only will the company be able to aim its goal by reducing costs within the tape storage division, but it would also be an advantage for both parties. It is advantageous in the sense that idle human capital or merely human capital that would be qualified to other units will be able to make use of their other skills and certain capabilities. In addition, these employees may even discover a new skill in line with the new deployed unit that they will be transferred to. Doing so may possibly give them an edge in addition to their value, thereby maximizing the companys profit. Another, if the employee is dissatisfied with the job upon redeployment, the employee can voluntarily resign, and leave the company, which will also be less costly on the companys part for there was no severance package or separation agreement offered before the redeployment of employees.

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From a practical standpoint, the company can breathe a sigh of relief if they would redeploy employees to efficiently meet the targeted cost reduction. The management, especially the HR department should not forget that they still have to manage performances of the redeployed employees since they do not have severance packages. Such contracts often stipulate that the employee will not sue the employer for wrongful termination or attempt to collect unemployment insurance. It goes a long way toward ameliorating any resentment the terminated employee might feel toward the business. So, this would mean that if the redeployment process is not managed well, the company may be in deep trouble. In addition, offering severance packages gives employees a sense that the company cares for their welfare. It eases tension among employees who might otherwise get the idea that the business has no heart or that it does not care for them. Since the redeployment in VTI would entail not giving severance packages, the HR manager should find cost saving ways in giving compensations and benefits to its employees.

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