BUSINESS POLICY

MBA II SEC A
SUMMER SEMESTER

CASE 2: ANALYSIS
DESCON ENGINEERING

SUBMITTED TO: PROF. F. A. FAREEDY

TA: HADIYAH QAISER

SUBMITTED BY:
HAMMAD MAZHAR (09P1116)
MONIBA JAVAID (09P0038)

LAHORE SCHOOL OF ECONOMICS

5/16/2011
Quantitative Statements

1. At present engineering service and construction provided most of the company’s

revenues, contributing 80% since 1978, manufacturing provided the remaining revenues.
2. Descon started its operation with 5 personnel drawn from Dawood Hercules. And 4 of
these reported to Razak.
3. The strength of the engineering employees was 56.6% of the total permanent manpower
of Descon whereas the Professionals were only 9.4% of the total manpower strength.
4. 96.75% of Total manpower including permanent and contractual employees was in the
Engineering Division whereas 2.6% were in manufacturing Division and 0.37% was in
Corporate Office.
5. Exhibit 7 shows that 2% of the permanent staff is comprised of Corporate as compared to
58% for Engineering and 20% for Manufacturing and 20% for others.
6. At the end of 1989, Descon’s permanent man power strength was 350 and the total
manpower of the company had reached 3756.
7. Before the end of 1986 Razak was facing new organizational challenges
8. In 1990 the management adopted a control system based on the concept of “ Profit and
cost center”
9. In 1990 Razak projected major growth potential in the business areas of Project
Management, Engineering services especially designing, and Boiler Manufacturing.

Qualitative Statements
 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.
 Shouqat 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 the
time socializing.
 Documentation required to implement the new procedures was cumbersome. This at
times resulted in people not making the necessary changes in the records.
 The professionals in the company wanted accountability culture to take roots in the
company. But the older employees had thriven under a system of personal loyalty and in
formalism.
Evolution of Organization

1997

 Their was a Skeleton Structure

 Their were 3 project managers and a finance guy
 Highly decentralized everyone was expected to keep their doors open for each other.

1982

 Company grew in size; additional hierarchical layers had to be added. Making the open
doors policy difficult.
 There were no rigid principles of functional departments. Due to which the finance guy
looked after the finance, procurement, personal etc.

1983-4

 More business growth

 Separate department established to look after marketing in 1982
 Fabrication and technical function were added in 1983.

1986

 Continued growth, increase in work load, increase in size and no of contracts.

 Company was formally split into functional units and departments.
 Each unit was looked by a separate GM and each department was looked by a separate
manager.

1987

 Company became highly diverse, new offices were being developed even in IRAQ.
 Business in Karachi was growing
 Introduction of Mechanical products, Descon electro system and water and effluent
treatment.
 Therefore opted for decentralized admin and centralized policy making.
 Problem due to decentralization were:
o Lack of coordination between civil and mechanical department of construction
unit.
o Additional purchases of items that were already available at other units.
o More strain on technical director (Shoukat Rasool) due to into to 3 new products.
o Difficult to manage span of control.
1988

 Operational powers were taken back from the unit managers and transferred them to the
newly created position of divisional mangers.
 Two divisions to enhance control were created engineering and manufacturing because
there were great growth potential their

1990

 Shoukat Retired. Syed Tahir Jan (GM business development) took his place.
 Mazhar post was upgraded to Deputy managing director.
 Increase in coordination of manufacturing and engineering division.
 Coordination at corporate office still a concern

Problems

 Lack of control at the corporate office due to which coordination between various
business units and departments across division lacked coordination. The employees were
used to the informal control systems that were prevalent in the company in its initial
phase. It was a complicated process as result of which the employees did not make
necessary changes in the records.
 There was lack of integration between departments and as a result it led to poor
operational efficiency due to inefficient and ineffective decision making especially in the
case of formalizing a appropriate organizational structure.
 Engineering posts were given more importance than the Corporate and manufacturing
Division employees and neglecting the Managerial posts.
 New professionals wanted accountability culture in the company where as old
employee’s was thriven under a system of personal loyalty and informalism that
characterized the traditional Seth culture. This led to a mismatch between the interests
and they way of working between the old and new employees which was causing many
coordination problems with the organization.
 The company was not flexible enough to cope up with the immense growth coming their
way especially in the boiler manufacturing long and WETS. Organizational structure
went through many changes from 1977 till 1990. Though the organizational structure was
a formal structure but it had no departmentalization till 1984. In 1987 the structure was
once again revised and adopted the structure of decentralization which worsened the
 management problems due to lack of coordination among departments. Moreover, the
structure was also leading to duplication & wastage of company resources.
 Due to a lack of proper HR department there was no formal hiring and recruitment
procedure in the company and the director, Razak, was hiring people and creating posts
on his own judgment without consulting the manger personnel.

Core Problem

Every time company grew there was a problem, Descon Changed their 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 had their consequences such as to meet new demand new
employees were hired, who wanted accountability where as the old employees were in favor of
the old decentralized system. The company required a planned evolvement to cope with its fast
pace of growth. It wanted a structure that would be flexible yet formal. But in reality, this was
not happening. The management could not handle the widening span of control. The process of
decentralization added to worsening conditions of the company. The reason was that the
management itself had no managerial experience as they were mostly engineers who were
masters in their technical fields but did not possess any business skills. Hence there was lack of
coordination between the corporate office and different divisional areas

Recommendations

 Improve relationship between various functional divisions.

 Give ability to take decisions.
 Formalized Human Resource Department which should vigorously work on setting up
proper HR policies, practices and procedures. This department should have the
responsibility for hiring & firing, compensation, evaluation and appraisal and training of the
employees.
 Training, Workshops and Seminars should be conducted 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 with changes in the organization. Training and
development activities should be designed to help employees adapt the organizational
culture. Those who are already aligned with the corporate culture can be trained to accept
additional responsibilities. All these activities require an active participation from the HR
department, which will conduct such programs.
 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 answers to two immediate supervisors: a functional supervisor and a project
supervisor. Matrix structure is a highly flexible form that is readily adaptable to changing
circumstances. Using this structure will provide better cooperation across functions. This
would avoid the issues like duplication of resources and lack of communication. It will
further improve flow of information between the departments handling projects of the same
clients. There will be improved decision making and increased flexibility. The matrix
structure allows for human resources to be shared flexibly across different projects or
products. Functional areas maintain a stock of talented employees to meet projects'
requirements. Using this structure will result in better performance accountability. This is a
crucial recommendation because applying this will reduce most of the problems of the
organization which include: lack of integration, lack of control, lack of coordination and
flexibility.