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Aug 03 2011

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Pros and cons when tech companies downsize

Mergers and acquisitions are inevitable in most industries. The telecoms sector is no different. Using the recent privatisation of the Bahamas Telecommunications Company as a starting point, this post discusses some of the pros and cons of downsizing.

On Friday 30 July, newspapers in the Bahamas reported that 162 people had spent their last day at the Bahamas Telecommunications Company (BTC). They had received voluntary separation (VS) packages, and were the first wave of staff to leave.

The BTC, the incumbent telecoms company in the Bahamas, is undergoing considerable change. It was recently privatised, with the government’s 51% stake being sold to Cable & Wireless Communications (C&W). The company is being restructured, and a critical undertaking in the first instance, is to reduce the 1300-strong staff complement by around 400.

Although the VS exercise was oversubscribed by over 200 applications, there are concerns that those who will be leaving the company might mismanage their VS packages and “end up on the unemployment line with empty bank accounts” (Tribune). However, while it is indeed possible that people will mismanage their funds, there are a number of other benefits and challenges that should be considered.

Benefits of downsizing and VS

1.  Company managing costs. For a population of 330,000 and a company size of 1,300 employees, arguably, the BTC has an unusually large workforce. As a former government-owned entity, the company may have been expected to absorb a number of school leavers annually, which may have contributed to its bloated staff numbers. In restructuring the company, there is now a unique opportunity for the BTC to better manage its costs and to become more competitive.

2.  Opportunity to improve efficiency. Following from the previous point, the company can also optimise its structures and processes, with the expectation of increasing operating efficiency. Currently, the Bahamian telecoms market is not fully liberalised: a monopoly still exists in the mobile/cellular market. Hence the BTC can re-position itself in anticipation of competition, which should be allowed in the next two to three years. Further, downsizing and restructuring also allow C&W, as a key player in the region, and as a large international company, to take advantage of economies of scale and scope, along with its considerable bargaining power, which should result in cost savings benefiting the Bahamian market.

3.  Separated employees can explore other opportunities. While there have been concerns that separated employees will fritter away their packages, which were reported to be on average a minimum of BSD 100,000 (USD 100,000), those former employees now a have chance to explore other opportunities. Some of those who received VS reportedly have already made plans as to how they might spend their time, e.g. to start a new business, to focus on an existing business, or to take up employment elsewhere. More importantly, the generous packages allow all separated employees to enjoy a bit breathing space, while they decide what they might do next.

4.  Potentially re-invigorates tech/telecom market. Although everyone might not agree, restructuring a major company invariably opens up the labour market, and this is likely to occur in the Bahamas’ telecoms/tech market. Other tech/telecoms companies may now find skilled labour readily available, which would allow them to better develop their businesses. Further, it is highlighted that when new companies enter into an environment where the majority of skilled labour is already gainfully employed with a few large firms, invariably, those newer entrants poach key members of the incumbents’ team, or generally cannibalise their staffing.

Challenges of downsizing and VS

1.  Loss of skilled workers. A significant disadvantage of downsizing is the general loss of skilled employees. In the case of the Bahamas, separation from the company was voluntary, which means persons had to apply to leave. However, as tends to happen when VS is implemented, and although the BTC would have screened the applications, it is usually the industrious and skilled employees who opt to leave. Those who might not be as productive, or believe they might experience difficulty getting another job, are often the ones who do not apply and who stay with the company.

2.  Disruptive to business. The whole downsizing exercise can be disruptive to a business, and can foster uncertainty among employees. For the BTC, again since VS was used, the degree of upheaval might not be as acute. Nevertheless, and to varying degrees, the resulting restructuring usually requires the remaining staff members to re-orient themselves, which may also necessitate some retraining.

Final remarks

In summary, the downsizing and restructuring of the BTC, and the use of VS to facilitate that process, might not necessarily be a bad thing for the telecoms/tech industry in the Bahamas. While there is a fear that those who are leaving may eventually be worse off, it is emphasised they are leaving of their own volition. Moreover, as skilled persons, they have an invaluable opportunity to continue to contribute to the development of the still fledging telecoms/tech market in the Bahamas.

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About the author

Michele Marius

Michele Marius has a wealth of experience in the telecoms and ICT space, which has been gained in the Caribbean, Southeast Asia and the South Pacific, and in the public and private sectors. She is the Editor and Publisher of ICT Pulse.

Permanent link to this article: http://www.ict-pulse.com/2011/08/pros-and-cons-when-tech-companies-downsize/

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