CASE STUDY JID TECHNOLOGY: CONTROLLING LABOUR COSTS JID Technology provides software solutions to the financial industry. From its founding in 1988 through the 1990s, the company experienced significant financial success, growing rapidly from a small start-up to a publicly traded organization with approximately 800 employees. The recent economic recession and increased regulation of the financial industry, however, have caused JID to experience significant decreases in revenue for the first time. This organizations attempts to control labor costs by decreasing expenses. Alan Thompson, founder of JID Technology, was always an idea man. Whenever something new came down the road, he jumped on it, took it apart, transformed what was there and created something different. He also embraced technology. Thompson was fascinated by its constant evolution, and he understood its creative possibilities well before the rest of us caught on. Thompson didnt start his career in technology. As a teenager, Thompson worked at the local bank where his father was the branch manager. Banking helped pay his way through college, and although he never liked working there, Thompson admitted that it was the beginning of his career success. Technology captured Thompsons imagination. He said his real career path started in the cluttered techno cave he carved out of a cramped space in his parents garage. He set up his first computer on a makeshift table squeezed between the lawn mower and the garden tools. It was there where he tinkered with programming and computer code. He designed simple accounting software at first, but he didnt stop there. Each new innovation made his software better and faster. When he realized his systems were far better than anything available in the banking industry at the time, he knew he was onto something. In 1988, he left banking and launched JID Technology. By the mid-1990s JID Technology was a major player in the design and maintenance of specialty software for the financial industry; JID products were at work behind the scenes at most major financial institutions across the U.S. and Canada. The early years of JID Technology were characterized by innovation and growth, and it was soon known as a great place to work. When the company grew and prospered, employees did too, with generous compensation and benefits that rewarded creativity and employee engagement. When 1999 turned to 2000, JID Technology greeted the new century with enthusiasm; it seemed that there wasnt a dark cloud on the horizon. JID Technology made its first public stock offering in 2006. By then, the company had 800 employees and new headquarters in Denver, Colo. As majority shareholder, Alan Thompson maintained control of the company, but he turned the dayto-day management of the organization over to Howard Kessler, Thompsons new CEO. Kessler came to the company with a strong background in international finance, and Thompson believed Kessler was the ideal choice to expand the company beyond North America. JID Technology began to change with Kessler at the helm. He hired Jack Albright as the new chief operations officer (COO), and Elizabeth Schiff became the new chief financial officer (CFO). Scott Montgomery remained as JIDs chief human resource officer (CHRO). Besides new management, other things were different as well; now there were shareholders to satisfy. In addition, the company underwent a major reorganization in 2008 that realigned departments and reassigned a number of employees. Some employees saw the reorganization as an opportunity for growth and new energy, but not everyone was happy. It wasnt just JID Technology that was changing. In 2008, the U.S. economy went into a severe recession, and the U.S. Congress responded with increased regulation and stricter scrutiny of the nations banks. As the financial industry adapted to the new banking practices, demand for JID Technology software dropped precipitously. Sales plummeted, and JID Technologys culture of easy profits and sky-is-thelimit employee perks morphed into a new era of cost containment and belt tightening. Every department was affected, but employees were hardest hit when a financial analysis showed that labor costs were not sustainable. The year ended with the implementation of a companywide hiring freeze to curtail labor costs and, it was hoped, squelch the need for more drastic measures. The hiring freeze was successful in reducing the number of employees. By late 2010, business in the finance industry had evened out, but JID was still not on easy street; increased competition in the marketplace caused sales to remain flat. JIDs stock price was falling. To address those issues, upper management held an intensive three-day strategic planning retreat off-site. The retreat included Kessler, Schiff, Albright, Montgomery and all the functional area directors. Before the retreat, the management teams spent many hours cloistered behind closed doors analyzing the various departments strengths and weaknesses and assessing budgetary and revenue forecasts. Kessler mandated that everyone come to the retreat prepared to make some difficult decisions regarding JIDs long-term future. Managers armed themselves with statistical data to defend the viability of their departments. Employees were on edge, and rumors were rampant because of the uncertainty about the future and the changes that might occur as a result of the retreat. The biggest worry was that the organization would downsize U.S. operations and move jobs offshore, even though JID took pride that its products were built and serviced entirely in the U.S. When managers returned from the retreat and remained tight-lipped about the results, employee tension increased as everyone waited for an announcement. Finally, on a Wednesday afternoon, Kessler sent the following email to the staff: All Staff: As you are aware, senior managers spent several days in important strategic planning discussions regarding the future of JID Technology. It is important that we continue to meet the needs of our shareholders, our customers and our employees as we move through these difficult times. Keeping those needs in mind, we recognize that some changes are necessary at JID Technology. For information sharing and discussion of our strategic initiatives, all employees are asked to meet with their area directors on Friday morning at 9:00. Further information will be shared at that time. .As always, thank you for the good work you do and for the outstanding service you provide to JID customers. JID employees are the foundation of our success. Howard Kessler CEO JID Technology The rumor mill was instantly at full speed as heads popped up from cubicles and employees clumped together in speculation. Staff meetings were common at JID, but there had never been anything like this before. What does it mean? This must be a major announcement. Why else would all departments meet at the exact same time? Have we been bought out? Are we shutting down? I didnt think things were this bad! Productivity plummeted. Except for a lot of talk, the employees accomplished nothing from the time they received Kesslers e-mail to 9:00 Friday morning.

9:00 Friday Morning Employees met with their area directors as scheduled. Some arrived early, but in contrast to the usual staff meetings, nobody arrived late. Coffee service at staff meetings had been discontinued months ago as a cost-cutting effort, so when coffee and pastries were set out for the morning meetings, it only raised anxiety levels. Speculation continued as employees filled coffee cups and forked pastries onto paper plates. At exactly 9 a.m., everyone dispersed to their designated meeting areas. In conference rooms across the company, chairs were full, speculation ceased and employees waited. Of course, things are never as bad as rumors suggest. In most areas, relief could be seen in employees faces as directors reiterated the organizations commitment to employees, but the directors left no doubt that the future would be different. Managers had agreed that further cost-cutting measures would have to be taken. Employees were told to expect changes in working conditions as the company tried to cut labor costs by 10 percent. In addition, efforts would be made to increase sales revenue by exploring new markets. But for now, at least, the company was ready to move forward with no plans to lay off employees. Its been three years since JID implemented the hiring freeze. Scott Montgomery had hoped JIDs revenue stream would improve so the hiring freeze would be enough to keep labor costs in line with profits, but that has not been the case. As the economy continued to spiral downward, so did demand for JIDs software; revenue have fallen short of projections for the past two years. As a result, a number of measures were implemented to further reduce labor costs.

Departments were restructured and staff was reassigned to redistribute the workload left by departing employees. Most employees are now on flexible schedules, and the company encourages telecommuting where appropriate. Early last year, two floors of cubicles were consolidated into one floor of hot-desks, enabling JID to increase revenue by leasing out one floor of the building. Remembering how difficult that transition was, Montgomery still wonders how they all got through it. Some employees still grumble about crowded conditions and the lack of privacy in the open floor plan, but the move had a positive impact on JIDs income statement. The HR department has reports on all the staffing changes that occurred, and Montgomery is pleased with the results. Absenteeism rates are down, productivity is up, and labor costs are down by nearly 10 percent, as targeted. As much as he was hesitant at first, Montgomery has to admit that moving the engineering and design employees to a professional employer organization (PEO), Mayfield, resulted in significant cost savings. JID pays a flat fee for service to the PEO, who manages all the administrative costs and benefits for the leased employees. Montgomery is now working with department managers and the strategic planning team to move additional employees to PEO status in the coming year. Montgomerys HR staff was not exempt from the changes. The staff has not decreased so far, but their workloads have decreased. Montgomery realizes there is no way to justify the current staffing levels in the department. With many administrative duties shifted to Mayfield, there is far less need for administrative HR to be done in-house. When additional employees are moved to leased status, there will be even less need for in-house HR. Montgomery is consequently formulating a plan to reduce the HR department. He has expected the reduction all along, and he has had several conversations with his staff, so it will be a surprise to no one. He still finds it gut wrenching to plan a reduction for his own department. Most of his staff members are long-term employees, and hes not looking forward to making those reduction decisions. JID has managed most HR functions in-house, with the exception of some benefits. Employee health care benefits are managed by an outside provider, as is the companys defined contribution plan and employee assistance program. When specialty training is occasionally necessary on a new process or equipment, the training manager uses outside vendors, but otherwise JID does training in-house as well. Payroll management was outsourced a few months ago, eliminating Maria Gonzalezs payroll specialist job, but Montgomery managed to work her into a recruiting position. Montgomery understands that his staff of 10 people is big for an organization with 800 employees, which was the number of employees JID had when they ran a full house. But the number is somewhat in keeping with the standard ratio of 1.21 HR staff to every 100 full-time employees (this ratio would be expected in a comparable organization in which the HR department manages a broad scope of activities). Montgomery was taking notes for outsourcing some of the HR functions when he received the following phone call from COO Jack Albright. Scott, said Jack, theres not very good news from Elizabeth Schiff on the quarterly profit picture. The numbers are down again. It seems stockholders are getting pretty nervous about JIDs future, and this time Kesslers laid it on the line. Im sorry, Scott, but it looks like youll have to contend with more than just downsizing your own department. They are asking for an additional 10 percent reduction in force, straight across the boardas soon as possible.. Questions: Montgomery wants to get the overall staff reduction taken care of before he tackles the HR reduction; he will need his staff to help manage the reduction process. He wants to make this as smooth as possible with consideration for the employees and for the future of Thompson. He has asked for input from all of his managers. He has scheduled a meeting with your team this afternoon, and he asked you to report on the following: What should Montgomery do to prepare the organization for downsizing and the best long-term results for both JID and the employees? 1. What is JIDs Corporate strategy? What were the triggering events to stimulate change? 2. Complete SWOT analysis and environmental scan for JID. 3. How does JID align HR strategy to business strategy? 4. What could be the factors affecting JIDs forecasting of HR needs? 5. Which forecasting methods would you recommend and why?