Jim Daniels was unprepared for the dilemma facing Defense Systems, Inc. (DSI). Jim, vice president of Human Resources, joined the company 1 year ago when he was pirated away from one of the company’s major competitors. DSI manufactures electronic components used in weapons supplied to the Air Force and in many products for other industries. In addition, DSI makes semiconductors used in many of the weapons systems as well as in personal computers and automotive computers.

When Jim joined DSI, a major drive to build up the staff in engineering was undertaken in anticipation of a major upturn in the semiconductor market. Unfortunately, industry analysts’

projections were overly optimistic, and the semiconductor market failed to pick up. DSI recently completed an aggressive hiring policy at the major universities around the United States, wherein the company had selected 1,000 engineers who were among the cream of the crop with an average GPA of 3.4. Without a pickup in business, however, DSI is confronted with some fairly unpleasant alternatives.

From one point of view, potential cost reduction measures at DSI fit the overall pattern of cutbacks, restructuring, and downsizing that many major U.S. companies face. The motives among firms who have trimmed their workforces vary—some to please Wall Street and the stockholders, others to keep pace with foreign competitors or to shrink an unwieldy organizational structure. To Jim, DSI layoffs or terminations are poor alternatives to dealing with a turbulent environment.

The major problem, as Jim sees it, is to preserve as many jobs as possible until business picks up. To terminate the new hires would irreparably harm DSI’s future recruitment efforts.

On the other hand, underutilizing these talented recruits for very long would certainly lead to major dissatisfaction. Although terminations would improve the balance sheet in the short run, Jim worried about the impact of such a move on corporate loyalty, a fragile and rare commodity at other major firms that have had to cut their white-collar workforce.

Jim is scheduled to meet with the executive committee of DSI in 3 days to discuss the overstaffing problems and to generate alternatives. In preparation for this meeting, Jim is trying to draw on his experience with his past employer to generate some ideas. A number of differences between DSI and Jim’s old employer, though, make comparisons difficult. For one, DSI does not employ nearly the number of temporaries or student interns as did his former employer.

Nor does DSI rely on subcontractors to produce parts needed in its assembly operation. Because of extra capacity, DSI can currently produce 50% of the parts it purchases, whereas Jim’s ex-employer could produce only 5%.

Another major difference is the degree of training provided by DSI. At Jim’s last employer, each employee could expect a minimum of 40 hours of additional training a year; at DSI, however, training consists of about 10 hours per year, much of it orientation training.

Jim wondered whether there might be some additional ways to remove slack from the system and at the same time preserve as many jobs as possible. For example, overtime hours are still paid to quite a few technicians. Would the engineers be willing to assume some of these duties in the interim until business picked up? Some older employees have accumulated several weeks of unused vacation. Could employees be encouraged to take unpaid leaves of absence?

Perhaps early retirement incentives could be offered to make room for some of the bright young engineers. DSI also has 14 other geographic locations, some in need of additional workers.

Could a recruiting plan for internal transfers address this problem?

As Jim thinks about these options, one thing is clear: He needs to organize and prioritize these ideas concisely if he is to be prepared for his upcoming meeting.

CASE QUESTIONS 

1. Why is Jim sensitive to DSI’s recruitment efforts?

2. What are some potential problems for the current class of engineers recruited at DSI?

3. How could the use of contingent workers help DSI?

4. Evaluate Jim’s alternatives for reducing DSI’s labor surplus. What do you recommend? Why?