Management: Policy and Practice Descon Engineering (PVT) Limited Written Analysis of Case

Introduction Descon Engineering (Pvt) Limited was set up by Mr. Razak S. Dawood in Lahore in 1977 with the objective of becoming the first integrated engineering company in Pakistan. The company was involved in providing a variety of manufacturing and engineering services to a variety of clients. During its growth process, the company had to face many competitors both in the domestic and foreign market. The company basically catered to three industries: power, cement and hydrocarbon. Its business prospects varied with changes in these three core industries in which it operated.

In April 1990, Mr. Razak S. Dawood, Managing Director of Descon Engineering (Pvt) limited started evaluating the existing organization structure of the company which had been implemented in November 1988. Rapid business growth and the need to improve coordination among various managers in different units had given rise to a number of problems within the organization. Thus Razak wanted to restructure the company in such a way that would help maximize coordination among various business units and departments. In addition to this he wanted to create a flexible environment within the organization so that it could cope with future business changes and he wanted to enhance the overall operation efficiency of the company. Quantitative Facts At present engineering service and construction provided most of the companys revenues, contributing 80% since 1978, manufacturing provided the remaining revenues. Descon started its operations with 5 personnel drawn from Dawood Hercules, 4 of which reported to Razaq. The strength of engineering employees was 56.6% of the total permanent manpower of Descon whereas professionals were only 9.4% of the total manpower strength (Exhibit 4). 96.75% of total manpower including permanent and contractual employees were in the engineering division whereas 2.6% were in manufacturing division and 0.37% were in corporate office (Exhibit 5). Corporate staff is 2% of the total permanent staff as compared to 58% for engineering, 20% for manufacturing and 20% for others (Exhibit 7). At the end of 1989, Descons permanent manpower strength was 350 and the total manpower of the company had reached 3756. Before the end of 1986 Razaq was facing new organizational changes. In 1990, the management adopted a control system based on the concept of profit and cost centre.

In 1990, Razaq projected major growth potential in the business areas of project management, engineering services especially designing and boiler manufacturing.

Qualitative Facts There was no lay-off of engineering personnel. The open door policy adopted in 1982 became difficult to maintain. According to decentralized administration and centralized policy and control all operational decisions would be taken at the unit level whereas policy and financial decisions would be prerogative of the corporate office. The company ran in to almost chaotic conditions due to untimely and too much decentralization. Shaukat who had earned a good reputation as a mechanical engineer found it hard to effectively manage the expanded span of control. Co-ordination meetings were ineffective since most of the participants spent most of their time socializing. Documentation required to implement the new procedures was cumbersome. This at times resulted in people not making the necessary changes in the record.

Evolution of Organization 1977 The company started its operations with a skeleton structure; five personnel drawn from Dawood Hercules. There were three project managers and a finance person. There was highly decentralized structure and the company followed an open door policy that is all managers including the Managing Director were expected to keep their doors open so that any member of the company who wanted to meet someone could simply walk into the office. This allowed effective and efficient communication.

1982 Company grew in size with additional hierarchical layers being added due to which the open door policy became difficult to maintain. The organization structure was not based on any rigid principle of functional departmentation due which the officer incharge of Finance also looked after finance, procurement, administration and personnel. 1982-84 More business growth Separate Marketing department established in 1982 Fabrication and technical functions were added in 1983 Executive committee meetings were held weekly to look after overall coordination of activities. 1986 1987 The company became highly diverse with increase in investments in Saudi Arabia, UAE and a new office being established in Iraq. Business growth in Karachi. Introduction of Descon Mechanical Products, Descon Elecro System and Water and Effluent Treatment Service. Overall growth made it difficult for Razak to handle all matters himself thus he decided to adopt the principle of decentralized administration and centralized policy and control. This also sorted out issues that had been given way due to the open door Continued growth led to increase in workload, size and number of contracts. Company was formally split into functional units and departments. Each unit was headed by a General Manager and each department by a manager. The Marketing department was replaced by a Business Development unit.

policy that the company was following earlier. With growth and an increase in size such a policy affects the core responsibilities of managers get affected. Problems due to decentralization o Lack of coordination between civil and mechanical department of construction unit. o Additional purchases of items that were already available with other units. o More strain on technical director, Mr. Shaukat Rasool. o Difficult to manage span of control. 1988 Due to problems associated with decentralization operational powers were taken back from unit managers and transferred to the newly created position of division managers. Engineering and manufacturing divisions were created to enhance control and also because they had great potential for growth. 1990 Mr. Shaukat Rasool retired and Syed Tahir Jan (GM, Business Development) took his place. Mazhars post was upgraded to that of a Deputy Managing Director. Increase in coordination between manufacturing and engineering divisions. Coordination at corporate office was still a major source of concern.

Problems With expansion in operations the company faced the need to expand its human resources base. There was a major expansion to recruit people with different skills. One of the major impediments to Desconss growth was finding the right people. It was hard to find competent engineers with business and commercial orientation from the countrys labor market. The company further had to make heavy investments in training its human resource to bring them to acceptable standards of performance. In order to

achieve their desired goal of becoming the first integrated engineering company in Pakistan, Descon had to train its employees according to the companys orientation of growth. There was lack of control at the corporate office due to which various business units and department divisions also lacked coordination. The management had decided to hold regular coordination meetings to improve coordination between various business units but the meeting proved to be ineffective because they were no more than a socializing platform for the participants. o The principle of decentralized administration and centralized policy and control gave way to lack of coordination and communication between various units and departments. Additional purchases of items were being made that were already available with other units. This reflected an ineffective inventory control system which led to wastage of resources. o The employees were used to the informal control systems that were prevalent in the company from its initial phase. Overtime the company had developed elaborate control procedures to monitor various business activities but the documentation required to implement these control procedures was a complicated process. Effective implementation of such a system required strengthening of a professional culture as opposed to the traditional Seth culture which was deeply embedded within the organization. Due to this employees did not make necessary changes in the records. o During the companys formative phase only some business units had well developed accountability procedures while others worked under a culture of non-accountability. With an increase in size and a large number of professionals being hired, these new employees wanted a professional accountability culture in the company whereas old employees were thriven under a system of personal loyalty and informalism that characterized the traditional Seth culture. This led to conflict of interests and the way of working between new and old employees

which further led to coordination problems within the organization. There was a contrasting culture prevalent within the organization. o Decentralization along with lack of synergies between various units and departments (ineffective resource allocation) ultimately leads to lack of accountability. There was lack of integration between departments and as result this led to poor operational efficiency due to inefficient and ineffective decision making especially in the case of formalizing an appropriate organizational structure. Engineering and technical posts were given more importance than corporate and manufacturing division employees thus neglecting managerial posts. The company lacked good managers which could help eradicate coordination problems within the organization. The company was not flexible enough to cope up with the immense growth coming their way especially in the boiler manufacturing business and WETS. The organizational structure went through many changes from 1977 till 1990. Though the organizational structure was a formal one but it lacked proper departmentation till 1984. The structure was revised again in 1987 and a formal decentralized structure was adopted which further worsened management problems due to lack of coordination between the different departments and units that were created. Moreover the structure was also leading to duplication and wastage of resources (inefficient allocation of resources). In order to avoid the bureaucratization of a formal structure, Razak encouraged the informal structure to operate within the organization. Due to lack of a proper HR department, there was no formal hiring and recruitment procedure in the company due to which the Managing Director, Razak was hiring people and creating posts on his own judgment without consulting managerial personnel. Core Problem The organizational structure was not flexible which gave rise to: Lack of coordination in the corporate office

The company could not cope up with growth Conflict of culture between new and old employees

Every time the company grew and expanded its operations, it gave rise to a problem. Descon changed its organizational structure quite often, which clearly shows that the organizational structure was not flexible at all and as a result Descon was reactive to growth instead of being proactive. Due to this inflexibility the changes that were being made within the company had their consequences such as to meet demand new employees were hired who wanted accountability within the company whereas old employees were in favor of the old decentralized system. This led to conflict of interest between the two groups and thus affected the way employees work within the organization. The company needed a planned evolvement to cope up with its fast pace of growth. Also it needed a structure that would be flexible yet formal. But in reality this wasnt happening within the company. The management was unable to handle the widening span of control. The decentralization added to the worsening condition of the company. The reason was that the management itself had no managerial experience since most of them were engineers who were masters in their technical fields but lacked business skills. Hence there was lack of coordination between corporate office and different divisional areas.

Recommendations Improve relationship/coordination between various functional units and departments. The divisions should be given the authority to make decisions. Presence of Formalized Human Resource Department which should vigorously work on setting up proper HR policies, procedures and practices. The departments should be responsible for hiring and firing, compensations, evaluation and appraisal and training of the employees, etc. in addition to this the HR department should be responsible for clearly communicating the policies, procedures and practices across different units and departments both domestically and internationally in order to allow a uniform culture

to flourish within the organization. This will help employees gain direction within the company and thus will help them accomplish their desired goals and targets that have been set by the company for them. Training, workshops and seminars should be held within the organization to manipulate the mindset of the old employees who were used to the seth culture and train them to deal with and become accustomed to changes within the organization. Workshops and seminars should aim towards a professional culture. Training and development activities should be designed to help employees adapt to the organizational culture. Those who are already aligned with the corporate culture should be trained to accept additional responsibilities. All these programs require active participation from the HR department. A centralized database should be present in which the resources in stock and being used by different units and departments should be recorded. The database should be updated on a timely basis in order to avoid inefficient allocation of resources. An Organizational Development department should be setup within the company which should be assigned the task of increasing the organizations efficiency and effectiveness. Its sole purpose should be to develop the organization and not to train or develop the employees. Organizational development programs initiated by this department should aim to achieve the following objectives: o Making individuals in the organization aware of the vision of the organization. Organizational development helps in making employees align with the vision of the organization. o Encouraging employees to solve problems instead of avoiding them. o Strengthening inter-personnel trust, cooperation, and communication for the successful achievement of organizational goals. o Encouraging every individual to participate in the process of planning, thus making them feel responsible for the implementation of the plan. o Creating a work atmosphere in which employees are encouraged to work and participate enthusiastically. o Replacing formal lines of authority with personal knowledge and skill.

o Creating an environment of trust so that employees willingly accept change. The organizational structure used should follow a matrix structure. The matrix organizational structure divides authority both by functional area and by project. In a matrix structure each employee is answerable to two immediate supervisors: a functional supervisor and a project supervisor. A matrix structure is highly flexible and is readily adaptable to changing conditions. Using this structure will provide better cooperation across functions. It will help remove issues such as duplication of resources and lack of communication. It will further improve flow of information between the departments handling projects of the same clients. This will ultimately result in increased flexibility and improved decision making. Such a structure also allows human resource to be shared flexibly across different projects or products. Functional areas maintain a stock of talented individuals to meet project requirements. Using this structure will also result in better performance accountability. This is a crucial recommendation because using such a structure will reduce most of the problems within the organization such as lack of integration, lack of control and lack of coordination and flexibility.