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DESCON ENGINEERING PRIVATE LIMITED

INTRODUCTION
In1977,MrRazaqDawoodinLahoreestablishedthecompanycalledDesconEnginerring
PvtLimitedwiththeobjectiveofbecomingfirstintegratedengineeringcompanyinPakistan.
CompanysheadquarterisinLahorePakistan,whereasitisoperatinginMiddleEastand
UAEaswell.Companybelongstoindustryofpower,cementandhydrocarbon.Thebusiness
areainwhichDesconisofferingitsservicesarefieldslikeelectricalmanufacturing,civil
construction, general fabrication, electrical and instrumentation, overseas plant services,
mechanical works and designing. The case was written in 1992 after two years of
identificationofproblemanditsimplementation.ThemainkeyplayersinentirecaseareMr
Razaq(founderofDescon),MrShaukatRasool(Technicaldirector)andMazharudDin
(GeneralManager).Themainproblemonhandisthereislackofcoordinationamongthe
employeesandexistingorganizationalstructureisunabletocopeupwithgrowthchallenges.
In1990,productsandservicesofferedbyDesconincludesEngineeringservices(intermsof
designing, piping, steel structures etc), WETS (supply water softeners, industrial waste
treatmentplantsetc),Constructionservices(Civilconstruction),E&I(supplyproductand
services for electrical and instrumentation industry), Engineering works (boilers , tanks,
pressurevesselsetc),andprovidingplantservicesforvariousindustrialprojects.
Therearealmost5competitorsofDesconineverybusinessareatheyareoperatingand
Engineering services and construction business contributes the most to the revenues of
company.

SITUTATION ANALYSIS
Where the company was:
Thecompanystartedoffwithahumanresourcepoolofmerely5poeple.Amechanical
engineer, an electrical engineer, two chemical engineers and a finance manager. All
personnelreportedtoMr.Razakalone.

Where the Company is:


AtpresentthecompanyhasplantsandofficesthroughoutPakistan,MiddleEastandvarious
otherlocationsincludingSaudiaArabia.Itiscontinuingtoexpandandthiscasestudyisfrom
thetimesofprobablythemostrapidgrowththecompanyhasfaced.
Most of the companys revenue, at present, is generated construction and engineering
serviceswhilemanufacturingprovidedfortherest.
Afterthatmanymajorandminorconstructioncontractsweresignedandobtainedbythe
companysuccessfully.Theystartedwith5peopleandby1989permanentmanpowerwas
350whiletotalmanpowerwas3756.

Where the company was heading:


AIMOFRESTRUCTURING
Mr.Razakwascontemplatingonhowtogoabouttherestructuringofthecompanyinsucha
waythat
Cateredtotheexpandingbusiness
Viableforfutureprojects
Improvedoverallcoordinationamongstmanagersanddifferentdepartmentsandunits.
Company wantstorestructurethecompanytoaflexiblestructurethatwillcopewiththe
changesinenvironmentandforenhancingtheoperationalefficiencyofcompany.

PROBLEMS
Core Problem:
There is lack of coordination among the employees and existing organizational
structureisunabletocopeupwithgrowthchallenges.
MrRazaqwantstorestructuretheorganizationinaflexiblestructure,whichquicklyresponds
togrowthopportunitiesavailableinmarket.Upondecentralizingtheorganizationalstructure,
Descon have to face more problems in terms of coordination, controlling issues, culture
conflicts.

Minor Problems:

Widespanofcontrolunderonepersonnel.
Lackofcontrolamongthedivisionsandunits.
WeakprofessionalCultureproblems

IMPORTANT CONSIDERATIONS
Structures and Reconstructing Factors
Followingfactorsmustbeconsideredbyeveryorganizationforstructure.
1.
2.
3.
4.
5.
6.

TheDivisionofLabor
CoordinationMechanisms
Thedistributionofdecisionrights
Organizationalboundaries
Theinformalstructure
Thepoliticalstructure

Descons Organization Structure


Firstweneedtoanalyzeavailableoptionsforstructuring.Theprimeoptionsarefunctional
formordivisionalform.DesconEngineeringoptedfordivisionaltypeofstructure.This
divisional distribution is client based as each division is equipped with specific type of
servicesrenderingtospecifictypeofcustomersneeds.IbelieveRazakDawooddidtheright
thingtooptfordivisionaltypeofstructure.Suchtypeofstructureishelpfulinmaintaining

thecommandandcontroloverthedivision.Underthisstructureeachbusinessdivisionworks
asseparatebusinessunitsandtheirperformancecanbemeasuredandcontrolledbydeclaring
them as cost centers, profit centers or return on investment criteria according to their
operationsnature.

Issue in Restructuring
Nowthesituationisinhandthatorganizationisexpandingandtorespondthisexpansion
variousdivisionsandhierarchieshavebeenaddedwithtimetotime.Withthisexpansionan
addingnewpeopleanimportantissueoflackofcommunicationandcoordinationamongthe
divisions has been surfaced out and still we are facing the phase of expansion and
restructuring.Anotherissueisthatorganizationdoesnothavepolicytofireitsemployees
thatswhyemployeesareverylenientandlessresponsivebecausetheyknowthatwhatever
thechangeoccurstotheorganizationintermsofstructureorhierarchytheirjobsaresecure.
Italsoreflectsthechangeofstructureintermsofattitudeisonlyatthetoplevelofthe
organizationnotatthelowerandmidleveloftheorganization.

RECOMMENDATIONS:
Commandments of Change
Wheneverthereisachangetherewillberetaliationandresistanceforthechange.Peopleand
employeesusuallyresistbecausetheydontwanttopulloutthemselvesfromtheircomfort
zones.Now,itsaresponsibilityofthegoodmanagerandleadertomakethechangeprocess
assmoothaspossiblewithminimumamountofdamages.
IbelieveDesconEngineeringshouldfollowfollowingstepsgivenbytheJohnKotterto
ensureasmoothandwellreceivedchangeprocess.Thefirststepinthisregardistocreatethe
sense of urgency for the change means that Descon Engineering should create such an
environmentunderwhichpeopleandemployeesaremadetorealizethatitstimeforthe
change.Itcanbedonethroughholdingvariousmeetingswithallthedivisionalheadswith
theagendaspecificallyforthechangeprocess.
Inthesemeetingsthepurposeandvisionforthechangeprocessshouldbediscusswithall
divisions.Thevisionmustalsoincludetheflexibilityfactorsforthefutureupcomingchanges
in the industry or environment trend. It means that in case of any technological or
environmental change in future the organization structure should be flexible enough to

welcomethosechanges.Thisvisionshouldnotbekeptsecretratherthisshouldbeshared
withnotonlythetoplevelmanagementbutalsowiththeeachandeveryemployeeofthe
organization.Communicatingthevisionwillhelpingainingthecoordinationandconfidence
ofallthedivisionsaspeoplewillrealizethattheyaretheintegralpartoftheorganization.
Nowemployeeswillprovidesuggestionsandtheirviewsfordesigningandimplementingthe
change process. When employees ideas and feedbacks are incorporated in the change
processandtheywillfeelthesenseofownership.Theyknowthatthisparticularideaismine
andIhavetofacilitatethisideaduringtheimplementation.
InordertofurtherchangetheattitudeofemployeesDesconEngineeringcanalsoarrange
various training,skillbuildingandupdatingprogramstotransferthechangeateachand
everyleveloftheorganization.TomotivateemployeesandboostthechangeprocessDescon
Engineeringcanalsosetsmallermilestonesandwinsassociatedwithrewards.Thelastbut
nottheleastorganizationshouldinstitutionalizethechangeasinthesedaysorganizationare
notstrivingforchangerathertheyarestrivingforthecontinuouschangeintermsofquality
andrapidindustrydynamics.Sotheemployeesshouldinstitutionalizethechangeandadapt
themselvesfortherapidchanges.

Declared Divisions as Return on Investment Centers Rather


than Profit Centers
Duringtheexpansiononemoreproblemwassurfacedoutthatorganizationalsostartedthe
losingcontroloverdecisionmakingbecauseexpandedhierarchy.Ibelievethatthisproblem
canberesolvedbydeclaringeachbusinessdivisionasreturnoninvestmentcentersrather
thanprofitcenters.Thisimplementationwillenableinmorecontrollingaseachdivisional
managernowwillbemoreprudentandcarefulinevaluatinginvestmentintermsofassets
andvariousprojects.

Resolution of Procurement Issues


Once the divisions are declared as return on investment centers then they would have
incentivetoselltheiridolinventorytotheconcerneddepartmentordivisionatthemarket
price.Thesellingdivisionwouldknowthatthissalewillcontributetogeneraterevenuefor
thedivisionandreducetheinventorycost.

Ontheotherhandbuyingdivisionwouldhavetheincentivetopurchasefromtheselling
divisionasitwouldknowthatitgetsbestmarketpriceandthereisnoneedtogetquotations
andcontactsuppliersinthemarket.Henceorderingcostandleadtimewouldreduce.This
costminimizingfactorwouldalsocontributepositivelytoreturnoninvestments.

Activity Based Costing System (ABC System)- A Solution for


Not Accepting the Projects with < 20% Profit Margins
DesconEngineeringCompanyisprovidingservicestoitsclients.Ibelieveinservicesector
fixedcostsarenormallyveryhighandtocoverthesehighfixedcostsorganizationsalways
catertothevolumesandtrytoserveasmanycustomersastheycanprovidetheirvariable
costs are being recovered. Hence I believe that Descon Engineering should serve the
customersaslongastheyarecoveringtheirvariablecosts.
AsDesconEngineeringinitsexpansionphaseandreadytoexpandinnearfuturethenits
veryimportantthatalldivisionsshouldfairlycosttheirservicesandonthebasisofthisfair
costchargethepricestotheircustomers.Eveniftheorganizationstillwantstocontinueits
policyofnotacceptingtheprojectbelow20%grossmarginthenABCsystemwouldalso
helpfulinthisregard.Itisthestrongpossibilitythatwiththetraditionalcostingmethod,as
theirservicesarenotfairlychargedandprices,divisionsarerejectingmanyprojectswhose
grossmarginaremorethan20%underABCsystem.

Table of Contents
DESCON ENGINEERING PRIVATE LIMITED.....................................1
INTRODUCTION.........................................................................1
SITUTATION ANALYSIS...............................................................2
Where the company was:.................................................................2
Where the Company is:....................................................................2
Where the company was heading:....................................................2

PROBLEMS................................................................................ 3
Core Problem:.................................................................................3
Minor Problems:..............................................................................3

IMPORTANT CONSIDERATIONS....................................................3
Structures and Reconstructing Factors.............................................3
Descons Organization Structure......................................................3
Issue in Restructuring......................................................................4

RECOMMENDATIONS:................................................................4
Commandments of Change...............................................................4
Declared Divisions as Return on Investment Centers Rather than
Profit Centers..................................................................................5
Resolution of Procurement Issues.....................................................5
Activity Based Costing System (ABC System)- A Solution for Not
Accepting the Projects with < 20% Profit Margins.............................6

MANAGEMENTPOLICYANDPRACTICE

WACCANALYSIS
OF
DESCONENGINEERINGPVTLTD

SUBMITTEDTO:
MSTANYA

SUBMITTEDBY

Group#07
MUHAMMADSAHAL
MEHREENASHRAF
AHMEDMURAD
SADIARAFIQUE