Stephen Tan worked in a private sector establishment for seven years. He was productive, hard working and liked his job. Then one day, much to his chagrin, the HR manager called and gave him 'the bad news'. The organisation was relocating overseas and among the few workers that had to be laid off, Tan was one.
In another part of Singapore, Serene Koh had joined the cosmetic industry a few months back. She was a nice person, liked by all, but was a late bloomer (as her employers called her) and unfit for the service industry. This was soon noticed and after a little training, Koh was moved to sales. The result was noticeable. She was more productive and her employers were happy that they had made the right decision.
Nothing unusual you would say, and agree that these are instances we hear of every day. While Koh's employers chose to retrain rather than to retrench, Tan's employers had little choice. While most would agree the 'right' thing to do would be to retrain workers rather than retrench them, this is often not possible due to restricted economic means. "The company may need to reduce costs for whatever reasons, usually to remain competitive, and one of the prime areas of cost is in labour. Thus, headcount reduction takes place.
In some larger organisations, some of the staff who are at risk may already have the skills and intellectual capacity to be able to make a quick transition into a new role and industry with minimum training," says David French, managing director, DBM Career Management Singapore Pte Ltd.
The inside story
Almost every newspaper, tabloid and television channel has been abuzz with the news that Singapore's labour market recovered significantly in 2004 with layoffs dropping to their lowest in seven years. Also, reflecting the economic recovery, the percentage of employees retrenched mainly due to a downturn in the industries has dropped to 9.7% from 19% in 2003. However, the Ministry of Manpower's Retrenchment and Re-employment 2004 report shows that private sector establishments with at least 25 employees retrenched 10,191 workers in 2004. Interestingly, the majority or 83% of the workers retrenched in 2004 were locals as employers could choose not to renew the employment contract with foreigners instead of retrenching them. The MOM report also highlights how over the decade the share of locals retrenched has generally show a trend upwards. (See box for the MOM's preliminary findings in the first quarter of 2005).
Needless to mention, in recent history corporate honchos such as Maxtor, Singapore Press Holdings (SPH) and Oracle have not refrained from downsizing when it came to taking the final decision. And the trend is likely to continue in Singapore. "I'm of the strong opinion that retrenchment and retraining will be key features of HR practices in Singapore. Over the last seven years, there were three distinct cycles of massive retrenchment. With an expected GDP at the lower end of prediction at 3%, we're now bracing for another wave this year," says Michael Teo, regional consulting manager, DDI Asia-Pacific International Ltd.
Interestingly, Harold Kwan, managing director from HRM3Asia, points out that "one sure paradigm shift noticeable in Singapore is that the responsibility for retraining and being prepared for retrenchment is now falling more and more upon the individuals and less on the employers."
To retrench or retrain?
Between retrenchment and retraining, the former would appear an easy option. It has been practised in the past and there is precedence to follow. In contrast, for retraining to be successful, the individual involved needs to be committed to change, new learning and new performance expectations - considerations that are harder to determine if you don't have the right systems and practices in place.
"Retraining is more of a challenge because more often than not, it is hard to change the mindsets of current employees. If there's a gap between the employees' current set of skills and the skills needed for the new role environment, this would make retraining even tougher. For example, retraining a factory worker to move to a new role as a biotech scientist will be very tough indeed," explains Paul Stefansson, regional director, corporate relations, ipac Asia.
Many employers therefore argue that retrenchment seems an easier option because once the employees are gone, the new staff is usually more receptive to the new environment. Not surprising, the trend is global. "Most companies would prefer not to use retraining because the company can find people better suited to the job in the labour pool. Retraining only really works at low-skilled and semi-skilled jobs where people can learn something well enough in, say, a year's time to compete with others in the job market who have worked in the new area. Few companies can wait that long in today's competitive market," says John Challenger, CEO, Challenger, Gray & Christmas Inc, Chicago.
In Singapore, people have accepted retrenchment as part of the business strategy, according to Kamini Das, corporate affairs director, GMP Group. However, companies agree that the real problem with retrenchment lies with guilt. Some companies assuage this guilt by getting outplacement firms to help their retrenched staff find new jobs. Nancy Tan, vice president of HR Operations at Singapore Press Holdings, differs with Challenger and says: "I don't think companies consider retrenchment an easier option. Organisations have got a heart and they will always consider all other options before taking the decision to retrench. The decision to retrench is made only when the job is redundant and there is no hope. Also, retrenchment is not an inexpensive exercise, bearing in mind the monetary as well as social and emotional costs."
Oracle was faced with such a dilemma last year following its controversial takeover of PeopleSoft earlier this year. Senior director of human capital management solutions for Oracle Asia-Pacific Sean Loiselle says that over the past several years the trend has been to retrench without even considering retraining as the slow economy meant it was very much an employer's market. "Over the past 12 months, however, that trend has been reversing. Many employers experienced the cost of hiring new employees to meet the demands of the growing economy and now realise that retraining may be a more cost-effective course of action," he says.
There are two key benefits of retraining, he says. The first "and most quantifiable" being reduced start-up costs for new employees. "It typically takes between six and 12 months for an employee who joins from outside the organisation to learn and go through the people and processes to obtain things such as ID cards, health care, a laptop or other tools as well as to get to know the business and their new team members. Retraining existing employees means that none of these costs are incurred," says Loiselle. The second key benefit is a mitigated loss of morale from employees who stay on when others are retrenched. "This is a benefit that's difficult to quantify, but just as, if not more, important to the long term health of an operating unit," he says.
In terms of cost-effectiveness, Loiselle points out, the way retraining is justified is often a combination of the quantitative and qualitative. "The commonly used calculation of S$10 to hire someone from outside the organisation versus S$3 to hire or retrain someone from inside to do a job is pretty compelling cost savings, however it must be weighed against the judgement of the ability for the person inside the organisation to perform the job required. In situations regarding several employees, the answer is sometimes a mix of retrenchment and retraining," he says.
How will HR cope with the crisis?
While retrenchment and retraining are essentially business decisions, the crisis in either or both cases need to be dealt by HR. While one severs employment, the other gives new hope for employability. And companies need to incorporate these practices as part of their operating HR systems or sub systems and not use them as quick-fix measures to address redundancy.
"I see it as imperative for companies to be open to either approach and select the best one that suits the business needs and strategy. One should go for the retraining option if there is critical talent to be retained and can be retrained for new requirements. But if there is excess staff capacity and they do not fit into the new business landscape, nor can they be reassigned to new job responsibilities, retrenchment may be an option as well. Either approach should not be mutually exclusive," Teo elaborates.
However, individual companies do not always have the funds set aside for massive retraining, according to French. He adds: "It's all about Singapore remaining competitive in the market place". As high labour-intensive businesses migrate to areas of lower labour cost, workers here must gain new skills, French suggests. "The skills development fund is one initiative that the government has put in place to help address this need. Another is to continuously seek new foreign investment in business and industry that can absorb the workforce. But the workforce needs to be ready to take on the new roles. Forward planning in educating the workforce and designing the education system to meet the needs is essential," French recommends.
Some steps have already been taken in this direction for the semi-skilled workers. The Singapore Workforce Development Agency's (WDA) national Continuing Education and Training framework establishes an integrated and coherent system to facilitate flexible adult learning, improve access to skills upgrading and provide clear career progression pathways for the local workforce to remain employable.
Also, the Tripartite Panel on Retrenched Workers, an initiative taken by the Ministry of Manpower, was set up in 1998. The panel recommended two programs for implementation - the Retrenchment Advisory Program to advise employers on alternatives to retrenchment and the Employment Assistance Program to assist retrenched workers find jobs easily.
These pro-active programs aim at offering employers a variety of options to retain their workers instead of retrenching them.
The alternatives include:
o sending the workers for skills training and upgrading under the Skills Redevelopment Program
o re-deploying the surplus workers to other work areas within the company
o implementing shorter work week or temporary lay-off
o implementing flexible wage systems
The Tripartite Panel further recommends that the company concerned could adopt one or more of these alternatives and carry out retrenchment only as the last resort.
Broadly mirroring the trend in retrenchments, the number of retrenching establishments in Singapore dropped by 35% to 723 in 2004 from 1106 a year ago. Also, the proportion of bigger establishments with 100 and above employees among them rose from 39% in 2003 to 42% in 2004. Nevertheless, the majority (58%) are still small establishments with between 25 and 99 employees.
But as the economic and business cycles continue to be shorter more than ever before, it will automatically have a greater impact on the employment landscape and human capital management in all companies. And the successful ones will be those that refine or even transform their HR practices to remain relevant to the ever-changing business needs, including how they execute retrenchment and retraining in support of business strategy in their organisations.
As Loiselle points out: "HR's role is to support both [retrenchment or retraining] regardless of how challenging they might be. As an HR professional, retrench versus retrain is one of the responsibilities that comes with the territory. The question to really ask here is how can HR assist managers in making the retrench versus retrain decision for their people and then support them and the employees affected through either process." HRM
Retrenchment in Singapore
Preliminary findings from of survey of private sector establishments each with at least 25 employees showed that 2000 workers were retrenched in the first quarter of 2005. This was a reduction of 38% from the previous period and about one-third lower than in the same period a year ago.
The manufacturing sector laid off 1200 or three-fifths of the total workers retrenched. The remaining 800 or two-fifths of the layoffs were contributed by the services sector.