Performance & Stress of Employees

during layoffs in Indian start-ups

BIO Project – Term 1

Submitted by Group 9
ARIHANT JAIN PGP34307
GAUTAM RAWAT PGP33119
G MERRICK PGP34317
NEHAL KHANNA PGP34327
RITTU PAUL PGP34337
SPOORTHY N PGP34404
INTRODUCTION

India has been a front-runner in ensuring that the start-up boom is sustained by introducing
start-up welcoming policies and business-friendly environment. India has a vast potential
providing a competitive environment forcing newer innovations.

A survey by global recruiting firm Randstad noted: “Of the 400 workers surveyed in India, 56
percent considered quitting their jobs to start their own business.” This was the highest
percentage globally and the survey was held across 33 countries. The survey highlighted that
83 percent of Indian employees would “love to be an entrepreneur” against the global average
of 53 percent.

This being said, start-ups have a small success rate of 10% as there are many risks and
challenges involved. Compared to the firms facing solvency issues, the successful ones are
often absorbed by bigger organisations or undergo mergers. Irrespective of the stability of the
start-ups, layoffs have been a part of start-up culture, either to keep the company afloat or to
meet merger demands.

OBJECTIVE OF THE STUDY

▪ Qualitatively study the role of management during layoffs in relatively unstable firms
(Start-ups) to keep the surviving employees loyal and motivated.
▪ To study the relationship between emotion and performance parameters during the time
of lay-offs due to mergers and acquisitions.

RATIONALE

Layoffs are often targeted at job cuts for the purpose of reducing numbers and eliminating
specific job description rather than considering the individual employee contribution and their
link to the company. This causes an unintentional rise in anxiety of employees across the
company which leads to change in the productivity. Studies suggest that this also contributes
to the lower productivity of surviving employees attributed to the increased stress and anxiety
levels. Various researches also suggested the negative impact of team performance during the
layoff phase.
METHODOLOGY

The method chosen to study relied on two types of data collection. The primary source of
reliable data was through direct interviews with the ex. HRs of corresponding Start-ups
(Caselets discussed briefly). The interviews included qualitative data on layoffs and the
organizational behaviour associated with it. The other primary source of data for this research
has been collected through a survey. The questionnaire included six close-ended questions
where the respondents were asked to give their view against the scale of one to five where one
was lowest, and five was highest on various parameters. Secondary data was collected from
the published data on news reports, articles, and publications. The collected data was analysed
using different statistical tools, Lewin’s Three-Step Change Model and the relationship
between various parameters were established.

CASELETS

CASE I: OYO Zo Rooms Acquisition

Zo room was started in December 2014 when Zostel, Zo room’s parent company, entered the
budget hotels’ space by setting up a chain of premium budget hotels. It was reported that the
giant-rival, OYO, was to acquire the smaller ZO Rooms.

During the process of acquisition, each employee was informed well in advance about the
financial situations and future plans of the firm by the founders themselves. Even during the
layoffs, employees were provided 2 months’ salary and were assisted to get placed in other
firms while few other were offered to join OYO. However, the majority of the people who
were offered to join Oyo, preferred to be unemployed rather than being employed in the rival
firm. As the employees shared a common vision, they volunteered to serve without pay to save
the parent company. The firm showcased high spirit of leadership by keeping its employees
motivated and loyal even during the phase of instability i.e. layoff.

CASE II: CommonFloor

On Jan 2016, Quikr bought CommonFloor for $200mn. The whole acquisition process was a
rollercoaster ride for CommonFloor employees.
 ▪ October 2015: Rumours of company being acquired or merging with one of its
competitors started in office. Most of the employees did not take these reports into
consideration. The top management of CommonFloor blatantly disregarded these
reports.
▪ Early-November 2015: Rumours grew stronger and more robust. Out of all the
companies suitable to acquire CommonFloor, QuikrHomes emerged as the most
plausible. Top management and CXOs at CommonFloor continued to avoid questions
about acquisition.
▪ Late-November 2015: 3rd Town hall meeting of CommonFloor was conducted. Unlike
company’s previous hall meeting that was held at Manhattan Hotel, the 3rd town hall
meeting was web cast. Every employee wanted clarity regarding acquisition rumours,
but the top management spoke only about company’s achievement in past year.
▪ Early December 2015: Sumit Jain, CEO of CommonFloor, sends an email to all the
employees, accepting that CommonFloor is in talks with Quikr regarding a possible
merger in near future, putting the rumours to rest. The email stated there will be no
effect on the employees whatsoever.
▪ Mid December 2015: Top management of Quikr including Pranay Chulet, founder and
CEO of Quikr, visited CommonFloor’s office. During a short speech, Chulet announced
that the paperwork is complete and CommonFloor is a part of Quikr.
▪ January 2016: Approximately 200 CommonFloor employees were laid off. The
company offered these employees unemployment benefits (salary of 2 months).
▪ February 2016: The retained employees of CommonFloor moved to Quikr head-
quarters in Manyata Tech Park, Bangalore, approximately 1 hr travel time from
CommonFloor’s office.

CASE III: Cube26

Cube 26 is an IoT, tech-based start-up founded in 2012. During its financial crisis of 2017, the
employees were kept unaware of the actual status of the firm. This led to an unexpected layoff
that affected employees, both emotionally and financially as there was no compensation.
Although some employees were assisted to get new jobs, the compensation provided was
insignificant. The firm did nothing to keep the morale boosted and the employees well
informed. The top management had a good vision and dream for the company’s growth but
was not effectively delivered and communicated to the employees.
The three different cases highlight three different situations during layoffs. Zo rooms (Zostel)
successfully managed to sustain the employee loyalty through constant communication
regarding layoffs and being clear on the expected future. In contrast to this, management of
CommonFloor didn’t bother themselves with the communication regarding the expected
acquisition and made false promises which included no relocation policies. Cube26’
management failed to realize the importance of employee engagement in firm’s growth and
would lay off the employees on a sudden basis which created high anxiety levels within the
employees.

DATA ANALYSIS

The parameters used to conduct the survey amongst start-up employees were:

1. Individual’s Performance (Self rated)

2. Team’s Performance
3. Individual’s stress/anxiety level (Self rated)
4. Team’s stress/anxiety level

Each of these parameters were surveyed against the phase of layoffs, i.e. before, during and
after the layoffs. The phases structure used Lewin’s Three-Step Change Model.

Unfreezing ( Pre Layoff phase) Movement (Layoff phase) Refreezing (Post Layoff phase)

Stress Level Near attribute The questionnaire structured was

1 No stress
2 Alert
3 Tensed
4 Highly Strained
5 Depressed
trivial in the sense that the parameters
were asked to be rated on a scale of 1
to 5.
 Phases Lewin’s 3 stage model
I Rumours about layoff
II Layoffs started
III After laid off names were revealed

ANALYSIS AND CONCLUSION

Using Lewin’s three stage model, the phases of layoff were studied against the stress levels of
teams and individuals.

Following are the (i) performance and (ii) stress graphs for all the three stages.

PERFORMANCE
Highly motivated
5 5 OBSERVATIONS:
4.1
3.8
Inspired
4 4 3.5 Relationship: Performance & stress
2.8 Own: Increase in stress is
Prompt
3 3 3.4
3 accompanied by increase in one's
Minimal
2 2 own performance
0.9
No motivation
1 1
Team: Increase in stress is
accompanied by decrease in team's
0 0 performance
Stage 1 Stage 2 Stage 3
Sharp decline in performance of
Own (Retained) Own (Fired) Team
fired employees and Stress of
retained employees in stage 3
STRESS Respondents rated their own
Depressed
5 5 4.4 4.5 performance higher than their
3.7 peers at every stage
Highly Strained
4 4 3.5
4.1
2.9
Tensed
3 3

2Alert 2
0.7
1
No stress 1

0 0
Stage 1 Stage 2 Stage 3

Own (Retained) Own (Fired) Team

Following conclusions could be drawn from the above analysis: -

Performance and stress graphs show contrasting results for individual’s and team’s
performance respectively. During the speculation phase, Individuals rated high individual
performance where as they rated low team performance. One of the conclusions that could be
drawn is, the people focussed more on individual performance under stress situation rather than
team performance. After layoffs, though the stress level decreased significantly, the
performance decreased, which confirms that performance is not linearly in proportion with
stress but depends on external factors too, for example sense of security.

Inferences drawn from the case lets were:

Firm showing higher level of team involvement and higher transparency i.e. “ZO ROOMS”
with its employees, received higher loyalty and commitment from its employees and performed
significantly better in the situation of instability as compared to CommonFloor & Cube26.
Motivation from peer groups and senior employees led to decrease in stress level which
increased over all performance
BIBLIOGRAPHY
1. Md Sahanur Islam, Partha Pratim Sengupta, Sukanya Ghosh, Samir Chandra Basu,
Meghnad Saha (2012), “The behavioral aspect of mergers and acquisitions: a case study
from India”, Global Journal of Business Research, Vol. 6, Num. 3
2. Maximiliano Dvorkin and Charles Gascon, “Startups Create Many Jobs, but They Often
Don’t Last”, The Regional Economist, Third Quarter 2017
3. http://www.hrma.ca/wp-content/uploads/2012/07/rb-forcedlayoffs.pdf
4. Center for Advanced Human Resource Studies (2010), “Understanding the New Reality of
Layoffs and Helping Employees Find Solutions to Cope”, Cornell University ILR School
5. https://yourstory.com/2017/09/startups-jobs-1-billion-millennials-india/
6. https://economictimes.indiatimes.com/small-biz/startups/quikr-merger-commonfloor-sees-
job-cuts-over-150-asked-to-leave/articleshow/51406193.cms
7. https://www.vccircle.com/oyo-buys-zo-zostel-all-stock-deal-zo-founders-quit
8. https://www.vccircle.com/exclusive-tiger-global-backed-cube26-shuts-down-iot-business/