H. Waqar Akhtar( [email protected])

8/14/2019 H. Waqar Akhtar( [email protected])

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H. Waqar Akhtar( [email protected]) Pak Hero Industries (PVT) LTD

HISTORY AND BACKGROUND

Pak Hero Industries (Pvt.) Ltd. was incorporated in June 1996 as a PrivateLimited Company under Companies Ordinance 1984 with an Authorized Capital of Rs.10

million. The sole object of the company was to manufacture and assemble.

auto rickshaws

motor cycles

scootersPresently company is manufacturing and assembling indigenous auto rickshaws of 175

cc, 33 PH. Head office of the company is located at 111 Noor Arcade, Lytton Road,

Lahore whereas the factory is located at Raiwind Road with an area of 36 canals.

Organization chart and Structural dimensions of organization and other information

related to production is given in Appendix A. When the company had first setup this

department in 1998, it had only one objective: controlling purchases to have the lowestcost of production. After all, the positioning of the organization was done on the cost

leadership strategy by the senior management. The marketing department had been doing

a lot to promote this tagline Lowest cost with comparable quality. The description ofthis department is given as under

SALES & MARKETING DEPARTMENT

GENERAL MANAGERSALES & MARKETING

1

MANAGER SALES

ASSISTANT

MANAGER

ASSISTANT

MANAGER


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Raw material is the first factor of production, and its quantitative, qualitative, and

economic acquisition, determines the overall cost of the product and efficiency of the

Organization. Pak-Hero Industries (Pvt.) Limited, a manufacturer of auto rickshaws,motor bicycles and scooters, had set up the purchase department to procure and to furnish

materials, specialized services and the spare parts etc., either locally or from abroad for

the production department of the company.

The purchase department is small, had three levels of hierarchy (its structure is given in

Appendix C). The Chief Accountant, although belonging to the finance and accounting

department (details in Appendix D).It all started in the year 2002 when the industry saw a booming demand of motorcycles

from the customers. Pak-Heros competitors Honda and Yamaha were well aware of the

situation and were operating overtime to develop schedules to meet the demands ofcustomers. Pak-Heros sales and marketing departments head announced in a board

meeting that the forecast for the sales of bikes for the next three years was excellent and

the company needed to speed up its production. The production department was certainlyoverwhelmed yet excited by this news. Rapid growth in the market meant rapid growth

for the company which translated into better salaries for the factory workers. Accordingto a source at senior management strategic plans were developed by the executives todeal with this exciting development.

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Analysis &Recommendations

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Goals, Strategies & Effectiveness

Mission Statement or Official Goals:

Official goal statements typically define the business operations and may focus on the

values, products, markets and customers that distinguish the organization. As the casehighlights, the companys main focus is to be cost effective. In Pak-Hero the official goal

or mission statement of the organization is to produce products at prices that are

affordable by a wide range of customers and to enhance its relationship with thecustomers that can result in customer loyalty by offering them products of comparable

quality. The organization values internal efficiency, control and productivity in business

operations and for achieving its mission the organization needs to cut its costs.

Operative Goals:

1) Resources:

Resource goals pertain to the acquisition of needed material from the

environment. As indicated in the case study, the purchase manager insisted on

following the same policies that he did as he wanted to have the most cost-effective suppliers. Thus, in the context of Pak-Hero Industries the resource goal

of the organization is to find less expensive sources of raw materials so that they

can meet their official goal of cost-effectiveness.

2) Market:

Market goal relates to the market share or market understanding desired by theorganization. The market goal of Pak-Hero is to increase its market share as it

wants to become a leader in offering products at the lowest price. Its example is in

the case study where the marketing manager was alarmed at the companys

performance due to its low market share as compared to the competitors.

3) Employee Development :

Employee development pertains to the training, promotion, safety and growth of

employees. In Pak-Hero the employee development goal is to give promotions to

those workers who are more productive so that they can maintain a motivated andcommitted workforce and simultaneously achieve their productivity goal.

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4) Productivity:

The productivity goal concerns the amount of output achieved from the available

resources. The productivity goals are stated in terms of cost per unit ofproduction, units produced per employee or resource cost per employee. As

the demand of motor cycles is increasing day-by-day and the organization

predicts an increase in sales so to avoid any shortages in the future theorganization needs to speed up the production of motor bikes and in such a

situation the productivity goal of the organization is to increase the units produced

per employee per day. Another productivity goal is to decrease the cost per unit ofproduction to increase their profits. As highlighted in the case, the demand for

motorbikes is still excellent and these goals are thus necessary for the company to

meet this demand.

ORGANIZATIONAL STRATEGIES

Porters Competitive Strategies:

Porter has described three competitive strategies: low cost leadership, differentiation and

focus. We have evaluated the organizations against two dimensions that are competitiveadvantage and competitive scope. In competitive advantage it is seen that whether the

organization is competing by offering the lowest cost by offering the unique products that

can command a premium price. On the competitive scope dimension it is seen whetherthe organization has a broader scope that is dealing in many customer segments or it has a

narrow scope that is dealing in selected customer segments.

Low-Cost Leadership:

The competitive advantage of Pak-Hero industries is low cost this can be seen from thefact that the organization wants to achieve low cost by using less expensive raw materialas they believe that the cost of the product and the efficiency can only be determined by

assessing the cost of the material used for making it. The organization wants to increase

its market share by providing low cost as compared to the competitors as discussed in thecase. Also, the organization is using this strategy as their primary concern is stability

rather than risks or seeking new opportunities for innovation and growth. Stability means

that they are more concerned with controlled production, efficiency and productivity.

This also shows that the main objective of the organization is to undercut competitorsprices i.e. to offer lowest prices in the town but at the same time to offer comparable

quality products to its customers and earn a reasonable profit on it. To meet this objective

the organization tries to select the quotation of the supplier that is providing the lowestprice but at the same time quality material.

The competitive scope of the organization is broad as it is not serving to a selected

segment of customers in the market but to a wide range of customers that include therickshaw drivers and the customers of motorcycles and scooters.

Miles & Snows Strategy:

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The basic idea behind the strategies is that the managers seek to formulate strategies that

will be congruent with the external environment. Under this regard thy developed fourstrategies that were the prospector, the defender, the analyzer and the reactor. Our

analysis shows that Pak Hero uses the defender strategy.

Defender Strategy:

Pak-Hero is using a defender strategy as in the defender strategy the organizations do nottake any risks , carry out experiments for adapting to the environment needs and also do

not find out any opportunities in the environment rather they are more concerned with the

stability .In Pak-Hero the organization is mainly concerned with stability in the sense that

there goals are to maintain internal efficiency and control to produce reliable products fortheir steady customers instead of finding new markets and new customers. The case

analysis shows that the organization is focusing on cutting cost so that they can offer

lowest prices as compared to the competitors and to take advantage in case new

competitors emerge in the industry as this can enable them to prevent their market share.Internal efficiency and control is also required so that they can offer quality products that

are affordable. The environment is stable. Any increase in demand is easily predictable ascase analysis shows that the Pak-Hero competitors Honda and Yamaha have predicted

the expected growth in sales due to increased demand from the customer and are making

plans to meet the demand and avoid any supply shortages so that they can increase their

market share.

Balanced Effectiveness Approaches:

Each of the balanced effectiveness approaches, that is, stakeholder approach andcompeting values approach is discussed with respect to Pak Hero as under:

a) Constituency/stakeholder Approach:

In the stakeholder approach the satisfaction of the internal and external stakeholders

of the organization are considered to be the indicators of organization performance.Each stakeholder will have a different criterion of effectiveness because it has a

different interest in the organization.

Owners:

The owners effectiveness criteria are profit and maximization of wealth. The

companys introduction in Appendix A shows that the owners are satisfied from the

companys operations as there is a great demand for their products and company isprogressing day by day by increasing their product sales across different regions of

Pakistan. This shows that the organization is performing effectively in terms of profit

maximization.

Customers:

The customers judge the effectiveness of an organization if they are getting good

quality products that are free from any defects at the same time improved services.

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The increase in the demand of the motorcycles by the customers shows that

customers are satisfied from the quality as well as price of the motorcycles being

offered by the organization. That means that the organization is effective in terms ofquality and cost.

Suppliers:The suppliers measure the effectiveness of the organization in terms of satisfactory

transactions. However, till now the organization has not been able to form a long-

term relationship with its suppliers, which suggests a lack of trust. In the case, it ismentioned that the purchase department often takes 10 days to send a PO to a

supplier. The supplier is not satisfied from the organizations operations as the

supplier receives the purchase order after such a long time after they had received the

quotation. This shows that the organization is ineffective in satisfying theexpectations of its suppliers.

Employees:

The employees measure the organizations effectiveness in terms of their salary andjob satisfaction. In Pak-Hero as the organization is generating profit on the basis of

their cost leadership strategy therefore the employees are receiving a good salarypackage. Along with this in Pak-Hero those workers who are contributing to

productivity are provided promotions, which shows that the organization is also

committed towards employee development and as there is a growing demand of the

product that the workers produce therefore the workers are expecting a future raise intheir salaries. No labor force issues have been noticed in our analysis so it can be

deduced that the workers are satisfied from their job from all aspects whether it is

regarding the work place, pays and incentives etc. So from employees perspectivethe organization is performing effectively.

Recommendations:

Based on our analysis, we recommend the following actions:

Pak Hero should look more closely at its approach for satisfying the needs of

its key stakeholder- suppliers. Our analysis shows that the organization is wellaware of the fact that it doesnt have any strong relations with its suppliers

primarily because of the fact that it keeps switching between different

suppliers. The company should conduct a survey of all the suppliers once andfor all and evaluate them on all necessary characteristics such as price, quality,

delivery etc. and choose the best suppliers to build relationships with. This

will not only help the organization in reducing its purchase time, itll also lead

to a more trustworthy relationship with the suppliers. Pak Hero should not overly concentrate on cost as the only measure of

effectiveness as far as customers are concerned. It should not forget the all

important aspect of service and provide the customers with more servicecenters in different locations in all the cities that it sells. Complacency with

regards to customers should be avoided at all costs.

b) Competing Values Approach:

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The competing values approach measures the organizations effectiveness against two

dimensions focus and structure. The focus could be internal or external to the firm. Inthe internal focus the organization is concerned with the efficiency and well-being of the

employees and in external focus the management is concerned with the well-being of the

organization with respect to the external environment. The second value dimension is thestructure that can be stable or flexible. Stability of a structure means that the organization

values efficiency and top-down control whereas flexibility represents value for learning

and change.My analysis suggests that the rational goal model in the competing valuesapproach is most suitable for Pak Hero.

Rational Goal Model:

In Pak-Hero the rational goal model applies as the organizations focus is external. This

can be seen from the fact that the main goal of the organization is to follow a cost leader

ship strategy in order to gain market share and increase its profit. Another goal of the

organization is to achieve productivity that also gives an indication that the organizationfalls under the rational goal model. They want to cut their cost in producing the products

so that the customer could be offered the lowest price goods. From the structuralperspective, Pak-Hero has a stable structure. This can be seen from the fact that they

prefer top-down control and efficiency to innovation and learning as shown in various

hierarchies in the organization/departmental charts. This also shows that the main

emphasis of the organization is not on human resource. Employees have to implement thepolicies and procedures made by the top management and no autonomy in decision-

making is given to them. On the basis of all the indications it can be said that the

organization is following a Rational Goal Model approach.

The External Environment

ENVIRONMENTAL DOMAIN

Since organizational environment is defined as all elements that exist outside the

boundary of the organization and have the potential to affect all or part of theorganization, so, we have to identify the organizational environment for Pak Hero

Motors. For this, we have to see organizations niche and find out those external sectorswith which the organization will interact to accomplish its goals i.e. its domain. We will

analyze its task environment as well as general and international context to see where

organization is standing at the moment.

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Task Environment:

For analyzing task environment, we have to see with which sector, organization directly

interact.

1. Industry:

Pak Hero has direct link with industry as it is competing with Honda and Yamahaand also making plans to have competitive edge on sales and prices in comparison

to them by using cost leadership strategy.

2. Raw materials:

As mentioned in the case, raw material is the first factor of production and itsquantitative, qualitative and economic acquisition determines the overall cost of

the production and efficiency of the organization. Pak Heros low cost leadership

strategy cannot be implemented without having control on sources of rawmaterials i.e. without having strong relationships with suppliers. So, they are very

much dependent upon efficient suppliers for raw materials.

3. Market Sectors:

Market sector is also influencing as Pak Hero has to make proper plans as the

market demand rises. Capturing market share is also one of the main objectiveswhich Pak Hero has established. This was market demand that compelled Pak

Hero to focus more on production of motorcycles instead of rickshaws. Hence, the

strategies change with the market situations.

General Environment:

These sectors do not have direct impact on Pak Hero but they indirectly influence it. They

include many sectors which are analyzed below.

1. Government:

Government influences in a way that its one decision for increasing tax leads the

company to higher cost of production and as a result high prices of finishedgoods. This all can affect the sales as well as profits for Pak Hero. However, taxes

on import of raw materials (which competitors import) and subsidiaries providedby government give boost to the sales and profit.

2. Socioculture conditions:

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Socioculture conditions are in the favor of the company as the inclination of

young age group people toward motorcycles is increasing, that is why the chance

for greater market share for Pak Hero is rising. Moreover, when people decided toban the consumption of foreign goods, Pak Hero being a Pakistani company gets

advantage. Its market share has considerably increased in recent times.

3. Economic conditions:

Since inflation rate is almost stable from last few years, this condition allows PakHero to predict accurately about future sales and costs. This is a helpful situation

as they can maintain their low cost leadership strategy in a more effective manner

by focusing accurately on price cut mechanisms.

4. Technology:

This is a very sensitive area. Pak Hero has to specifically focus on it as a little

change in technology of motorcycles and rickshaws which if not used by thecompany can readily decline sales. Moreover, they have to find new and

innovative ways so that they can serve better in the niche that will be created.

International Context:

At the moment, most of the spare parts are manufactured locally, so Pak Hero, which is

using them, can offer at half the prices of their international brands. Various import duties

are making other brands products costly, that is why they cannot compete with Pak Heroin prices. But in 2005, due to WTO, the duties and customs are reducing, that will cut

down the prices of imported brands. Pak Hero can have problems as imported items

produced by advanced technology. So, Pak hero has to fully aware of internationaltechnologies and various other factors to maintain its market share. Moreover, if it plansto export its products in the future, it also have to take care about various market

requirements internationally it has to face.

Since uncertainty increases the risk of failure for organizational responses and makes it

difficult to compute costs and probabilities associated with decision alternatives, we haveto find the environmental uncertainty for Pak Hero to have complete control on it. From

the above mentioned environmental domain, we can find environmental uncertainty for

the company easily.

ENVIORNMENTAL UNCERTAINITY

Simple-Complex Dimension:

From environmental domain it is clear that Pak Heros environment is somewhat

complex. It has direct and indirect concern with many diverse sectors and has to control

and manage work properly according to them.

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Stable-Unstable Environment:

All the sectors of environmental domain are almost stable i.e. they are not changing

abruptly. But due to high demand, the environment is becoming unstable but not withhigh rate. Overall we can conclude that environment is almost stable.

From above mentioned data, we can develop a framework for accessing environmental

uncertainty.

Framework for Accessing Environmental Uncertainty

Recommendations:

On the basis of the above analysis we have given the following recommendations so thatit deals with its environment in a more effective way:

Adapting to Environment Uncertainty:

As we have found out that the environment is somewhat low moderate uncertain, so we

have to determine the right fit between internal structure and external environment i.e. we

have to adopt internal structure in a way to fit according to our external environment.Following are some of our recommendations through which Pak-Hero can adopt

according to environmental uncertainty.

1. Positions and Departments:

The number of departments and positions within the organization increases withincrease in uncertainty. Pak Heros environment is not too much uncertain, so,

different departments and their various positions can handle it, i.e. we dont have

to merge or eliminate departments, as they are working with best fit withenvironment. No huge change in structure of organization is required here.

Moreover, since products are almost same and there is no huge variation in

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Complex + Stable =

Low Moderate Uncertainty

1. Large number of external elements

and elements are dissimilar.

2. Elements remain the same or change

slowly.


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product line, decentralization cannot be better option to control working here.

Centralized structure can give in-depth knowledge and economies of scale which

is needed in such environment.

2. Buffering and Boundary spanning:

Buffering role is to absorb uncertainty from the environment, while boundary

spanning roles link and coordinate an organization with key elements in the

external environment. Buffering and boundary spanning is essential to work inhighly complex and uncertain environment. The environment for Pak Hero is not

very complex, so there is not much need of boundary spanning and buffering

roles. As competitors are less, so to keep eye on them is not difficult and without

a large scale boundary spanning, information about their working and future stepscan be collected easily. However, top managers should always keep an eye on

external developments. Conducting situation analysis informally every one or two

months is a feasible option for the managers. This practice can help the

organization to keep abreast of the latest trends and technologies in theautomobile industry and in the society at large.

3. Differentiation and Integration:

When the external environment is complex and rapidly changing, organizationaldepartments become highly specialized to handle uncertainty in their external

sectors. Success in each sector requires special expertise and behavior of

employees as well as management. This means the environment require

maximum differentiation. On the other hand, integration, which is quality ofcollaboration among departments, is needed necessarily when environment is

highly uncertain. Pak Hero stands in moderate environment i.e. needs moderateintegration and differentiation because all its departments do not have todifferentiate for specialized parts of products as product line is not big. Also

integration role is also not very large as only a few products are manufactured and

sold by the company. However, as the case indicates lesser integration betweendepartments often leads to inter-departmental conflicts. Therefore it is necessary

that all the departments work cooperatively to achieve the common goals of their

company. We recommend that a liaison role be created to integrate departments.

4. Organic vs Mechanistic structure:

The structure required for Pak Hero is between organic and mechanistic. Only onestructure cannot help in completing goals here. But at the moment, economies of

scale and efficiency is the main focus, so, the structure should more be of

mechanistic type with some qualities of organic structure like the one withformalization and rules but not strict rules. Learning and sharing of knowledge

should be encouraged by managers too. Moreover, high formalizations and long

rules and procedures should be reduced as we have seen in the case study thatmain problem come due to lengthy procedures which are decreasing efficiency

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instead of increasing. Face to face communication, which is the quality of organic

structure, should be implemented so that the managers can directly and on-time

talk to other managers for any problem or delay occurs instead of waiting for theformal meeting call etc.

5. Planning and Forecasting:

As the demand is increasing, proper planning and forecasting will help the

company to focus on its sales and meet the demand for market. As in the casestudy, the flaws in proper planning results in mismanagement and delay of

delivery of finished goods to the market. If they plan properly and forecast about

final time of delivery of products and raw materials, no problem will come.

Planning for day to day operations is not the only thing required; long term planssuch as five year sales forecasts should be developed to give direction to the

organization. The above mentioned information can be presented in a framework

for the organization as:

Contingency Framework for Environmental Uncertainty and Organizational

Responses

Interorganizational Framework

INTERORGANIZATIONAL RELATIONSHIPS

To survive in this highly competitive world, organizations have to build, develop andfoster relations with other organizations. Companies have always been dependent on

other organizations for supplies, material and information etc. So, they choose to developpositive and trusting relationships which could stay for long and give advantage in the

long run as well as in short run. Depending upon organizational types, various

relationships between organizations are formed. Pak Heros managers must carefullywatch them and make strategies accordingly.

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Low- Moderate Uncertainty

1. Somewhat Mechanistic

structure: formal and centralized.

2. Many departments, someboundary spanning.

3. Few integrated roles.

4. Some planning.


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Recommendations:

Pak Hero requires a strong and long term relationship with its suppliers because it is

depending upon resources to meet its demand. As the case study shows that all the mainproblems for the organization arise because purchase department has no relations with its

suppliers, no trust is developed between them; the result is long processes and delays instock delivery. This situation also leads to highly uncertain environment as depending on

other organizations for resources can bring negative effects on performance. Pak Herohas to minimize their dependence on suppliers for the supply of important resources and

try to influence the market to make resource available. Pak Hero has to make long term

contract or joint ventures to lock in necessary resources, or building long termrelationships. In this way, on-time and quick delivery of resources will be possible.

Technology

ORGANIZATIONAL LEVEL TECHNOLOGY

According to manufacturing process, Pak Hero has medium technology complexitywhich means that the manufacturing process is done by both the workers and machines.

Out of the three basic technology groups i.e. small batch, large batch and continuous, Pak

Hero lies in the second group.

In this category manufacturing process is characterized by long production runs ofstandardized parts. So because of mass production, the direct and indirect labor ratio and

manager /personnel ratio is medium but workers skill level and verbal communication

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between them is low. Formalized procedures, centralization, and amount of written

communication are very high. The mechanistic structure of Pak Hero supports all these

characteristics associated with its production process.

Recommendations:

Pak Hero can improve its efficiency by using the CIM (computer integrated

manufacturing) technology. CIM links together manufacturing components that

previously stood alone. Because of CIM, the organization would be able to delivera wide variety of motorbike and rickshaw models at low mass production cost.

Through CIM, Pak Hero would be able to compete with large low cost foreign

companies when WTO is fully implemented in Pakistan.

To implement CIM, Pak Hero will have to apply the following technologies:

1. Computer-aided design(CAD):

Through it, the organization can improve the drafting, design and engineering of newparts. This will also help Pak Hero in achieving its goal of low costs as CAD will lead

to less faulty and more efficient designs and parts.

2. Computer-aided manufacturing(CAM)

Pak hero can speed up its manufacturing by using it. CAM also permits a productionline to shift rapidly from production of one product to another just by changing the

instruction tape or software in the computer. This will also help Pak Hero in the

future if it plans to develop new products for this market or even diversify into other

industries.

3. Integrated information networkPak Hero can integrate its entire department like accounting, purchasing, marketing,inventory control, design, production etc by using this network. However, the use of

this network will largely depend on how quickly the organization changes its culture

from hiding information to sharing information. In the long run, this system will benecessary, if not essential, for the company to face the cut-throat competition.

DEPARTMENTAL TECHNOLOGY FRAMEWORK

Perrows Framework:

According to Perrows framework there are 2 dimensions of departmental activities.

These are variety and analyzability. This framework was applied to Pak Hero byanalyzing the variety and analyzability of tasks of its different departments. For this

purpose, a questionnaire was distributed amongst 100 employees of different departments

of Pak Hero which determined how variable and analyzable the tasks were. This

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questionnaire is attached as Appendix E. The results of the questionnaire are described

below.

Results of the questionnaire:

We distributed 100 questionnaires in the office as well as in the factory of Pak Hero. Butwe got back only 37 filled questionnaires. The analysis of the results of these

questionnaires shows that according to the employees of Pak Hero 73% of their work

consists of routine activities. The breakdown of the results with respect to differentdepartments is given as under:

Employees of production department said that almost 90% of their work is thesame everyday because they just have to assemble the parts.

Sales and marketing departments tasks have 61% analyzability.

Finance and purchase procedures are highly analyzable (almost 85%).

Employees of IT and HR departments reported to have 67% and 79% non-routine

tasks respectively.

According to production departments staff, their work is almost completely repetitive.IT, purchase and finance departments employees consider their work to be routine to a

medium extent routine. But HR and Marketing grade their activities to be routine to a

very less extent.

92% employees of the organization think that they have to do the same job in the same

way most of the time. But remaining 8% disagree with this point and most of them

belong to the HR department.According to all departments staff, there is a clearly known way to do the major types of

work which normally they encounter and defined rule or practices that can guide them indoing their work. Also, they almost always follow a sequence of steps in doing theirwork. The results of this study can be summarized with respect to Perrows framework in

the following way:

1. Variety

It is the frequency of unexpected and novel events that occur in the conversion

process. It is the tasks which are performed by the workers these could be routine aswell as non routine. In Pak Hero the variety is low because the tasks are almost

similar every time.

2. Analyzability

Analyzability refers to the fact that if you can develop rules and procedures forsolving the problems it means that the tasks are routine .But if there are no clearly

defined rules then the tasks are not analyzable. If the rules cannot be set then it means

that the tasks are non routine.

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In Pak Hero the work at lower level or at factory level is almost routine because it is

just to assemble the products. But at the upper level some times the tasks are non

routine because sometime they face problems which are new to them.

Implication for Departmental Design:

The overall structure of Pak Hero is bureaucratic. Routine technologies are associated

with a mechanistic structure and processes, with formal rules and rigid managementprocesses.

The implications for departmental design are following:

1. Formalization

As there are routine tasks in Pak Hero and because of it the routine technologies are

characterized by standardization and division of labor into small tasks that are

governed by formal rules and procedures. The variety is low so there are more formal

procedures.

2. Decentralization

Because of the routine technology in Pak Hero, most decision-making about tasks

activities is centralized. Most of the decisions are thus taken or approved by the top

management.

3. Worker skill level

Little education and experience is required for Pak Hero work staff of production

department because their tasks are routine having low variety so they have no need ofspecial education.

4. Span of control

Span of control is narrow in Pak hero because of the vertical structure e.g. as the case

illustrates the purchase manager has only two persons reporting to him. Thus, the

manager to employee ratio is very low.

5. Communication and coordination

Because of low task variety the communication activity and frequency is also low n

the organization. The direction of communication is vertical because of routine tasks.Because the tasks are analyzable so the communication is through written documents

as memos, letters, reports, rules and procedures.

Information Technology:

Currently Pak Hero does have an IT department but it does not perform any activity

which can make an impact on the working of the organization. There are only a handfulof people working at the department and the bulk of their task is to type, print or scan

documents or prepare Excel sheets. The only big achievement of this department has

been the establishment of a website with the help of another software house. The

homepage of Pak Hero www.pakhero.com is shown in Appendix F.

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http://www.pakhero.com/http://www.pakhero.com/


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Recommendation:

The information revolution has had a tremendous impact on organization in all industries.

Pak Hero can be much more successful by using IT to collect, store, distribute and use

information. Through IT, organization can evolve a variety of applications to meetorganizations information needs. Operation application can be applied to well define

tasks at lower level and efficiency can be improved. These include transaction processes

systems, data warehousing, and data mining. Management information systems,executive information system and decision support systems can be used as business

resources at middle and upper management level. Networking, intranets and enterprise

resource planning can be used to support greater internal coordination and flexibility.

Extranet can be used to for better relationship with dealers. Organization can leverage thetacit and explicit knowledge by using IT. The reason behind this is to encourage the

employees to share knowledge. However, this requires a special interest and desire from

the management in actually making use of Information Technology. Management must

be ready to make investments in soft wares and devices if it wants to reap the benefits ofIT and use it to improve processes at Pak Hero.

INTERDEPENDENCE AMONG DEPARTMENTS

Interdependence means that the extent to which departments depend on each other forresources or materials to accomplish their tasks. Low interdependence means that

departments can do their work independently. But high interdependence is opposite to it.

Considering this background, it can be concluded that there is low interdependence

among the departments with the exception of Purchase and Production departments. Theinterdependence among these two departments is sequential at Pak Hero i.e. the parts and

raw materials purchased by the department become the input of the productiondepartment to be used in producing motorbikes.

Recommendation:

In the existing structure this type of interdependence among departments of Pak Hero is

fairly understandable. However, managers must take appropriate actions to develop rules

and procedures which are standardized. Each department should use the same procedures

and financial statements so the outcomes of all departments can be pooled and measured.However, as far as the purchase and production departments are concerned, we

recommend that there should be extensive communication between the two departments.

A liaison officer could be used to coordinate among the linked departments. Extensiveplanning and scheduling should be done to avoid any misunderstandings.

Implications for the structure:

Pak Hero can use various levels of interdependence as:

Reciprocal interdependence can be used among the design, engineering,purchasing, manufacturing, and sale department for new product development.

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Horizontal structure or cross functional teams could be used to handle the back

and forth flow of information and resources.

When the product is designed, the sequential interdependence can be used for its

actual manufacturing with a flow of goods from one department to another, such

as among purchasing, inventory, production control, manufacturing and assembly.

Pooled interdependence can be used for ordering and delivery of products.

CULTURE AT PAK HERO

Our observation shows that the companys culture is largely rigid and bureaucratic.

However to confirm our observations we conducted a survey in which we asked

employees questions pertaining to the language used at Pak Hero. This technique was

used because language is a strong indicator of the culture at the company. Specialcompany slogans, metaphors or titles used for referring to customers or supervisors can

convey a lot of information about the type of values and beliefs a company has. Our

results show the following:

All the workers of the production department call their supervisor with the name

ofSir Jee but the employees at other departments call their managers as Sir.

Clients of the company are referred to as MARKET, KHARIDAR or

DEALERS.

The most commonly used word in Pak Hero according to the employees is Sir

which represents that how often workers have to consult their seniors for doingevery task.

No company specific terminologies were identified by the employees. This shows

that the collective spirit of the company is quite low.The analysis of the questionnaire shows that the culture in Pak Hero is rigid and vertical.Rules and procedures are strictly followed. Every person work has been defined and he

has to do the work according to it. There is no empowerment. Span of control is short. All

are working just like machines with no coordination in a closed atmosphere.

Recommendation:

Our recommendation for Pak Heros management will be to lighten up a bit and give theemployees more freedom. Treating the employees as assets rather than liabilities is a key

to turning the culture from that of mistrust to trust. The management should work to

provide more opportunities of workers from different departments to interact together.

Also, the distance between the supervisors and the subordinates must be reduced bytraining managers to treat workers with more respect and dignity. Managers must be

encouraged to mingle with their workers to find out their problems. A bi-annual

congregation all managers and workers in an informal atmosphere can also be arrangedby the company to decrease distances.

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Organizational size, Life cycle & Control

The life cycle of Pak Hero Industries tells us about its growth and change. Organizationstructure, leadership style and administrative systems follow a fairly predictable pattern

through stages in the life cycle. Among the four stages of the organization life cycle, Pak

Hero has crossed the first two and is currently in the formalization stage. Each of thethree life cycle stages Pak Hero has passed through are discussed below:

1. Entrepreneurial Stage:

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Pak Hero Industries (Pvt.) Ltd. was incorporated in June 1996 as a Private Limited

Company under Companies Ordinance 1984. At that time the emphasis was on creating aproduct and surviving in the market place. Mr. Jaffer Iqbal (Managing Director) and

other entrepreneurs devoted their full energies to the technical activities of production

and marketing. The organizations structure was informal and non-bureaucratic. Controlwas based on the personal supervision of Mr. Jaffer. Top management style used at that

time was individualistic and entrepreneurial.

As Pak Hero Industries stared to grow, the increasing number of employees startedcausing problems. The creative and technically oriented owners were confronted with

management issues but they preferred to focus their energies on making or selling the

product and inventing new products which they could produce. At that time the visionary

leadership of Mr. Jaffer helped Pak Hero Industries to expand further.

2. Collectivity Stage:

Under the strong leadership of Mr. Jaffer Pak Hero Industries was able to develop cleargoals and directions. Departments like marketing, finance, sales and production were

established along with the hierarchy of authority, job assignments and a beginningdivision of labor within months.

In this period employees identified with the mission of Pak Hero Industries to

manufacture low cost products and spent long hours helping the organization succeed.Members felt part of a collective, communication and control is mostly informal although

a new formal system was beginning to appear. Many dealers were beginning to show

confidence in the company.

At that time Pak Hero Industries started selling its products to all four provinces of

Pakistan. Due to high quality in commensurate with the international quality standardsPak Hero had gained a good reputation among dealers and ultimate buyers and the

company is achieving significant increase in product sale in all the provinces of Pakistan.

Pak Hero Industries was in the collectivity stage during the rapid growth years from 1998

to 2001.

3. Formalization Stage:

This is the stage Pak Hero is currently in. Pak Hero is right now involved in makingrules, policies, procedures and control systems. Currently our research shows that

communication is less frequent and more formal. More and more technical engineers,

human resource specialists and other support staff are being hired. Top management ofPak Hero Industries is now concerned with issues such as strategy and planning and has

left the operation of Pak Hero Industries to middle management like purchase managers,

sales and marketing managers, finance managers etc. Pak Hero is working continuously

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on its low cost leadership strategy and is devoting all its energy to cutting costs. Incentive

systems are currently based on performance as well as designation.

However, bureaucracy is generally taking over the company. The case highlights howpiles of rules have made it difficult for the purchase department to finalize purchases

efficiently. At this phase new coordination and control systems will enable the Pak Hero

Industries to continue growing by establishing linkage mechanisms between topmanagement and field units.

Recommendations:

Pak Hero is currently in the formalization stage and the rules and procedures are

gradually overwhelming the employees. Following are our recommendations for

decreasing red tape:

Certain amount of independence in different departments is also emerging. As the

case highlights, the departments are too engaged in managing their functions and

are not giving due attention to fulfilling company goals collectively. What is

needed at this stage is that the company should try to introduce teamwork withinbureaucracy. A link between different departments having varying interests like a

liaison role should be established to effectively integrate the various departments.

Managers should be given more training for confronting problems, working

together and resolving conflicts.

Job rotation across departments can be one option for the company to enableemployees to understand the problems of other departments.

A separate research department may also be established to invent new ways of

cutting costs across the departments and introduce more cost effective systems

and technologies.

As the company grows larger and introduces more products, it may also opt for ateam based structure where teams work on specific processes and move on to theelaboration stage of the organization life cycle. Currently, however, this option is not

feasible as the organizations main focus is on cutting cost.

Approach Used for Control in Pak Hero

Management of Pak Hero Industries uses the market control system for control. In PakHero Industries price competition is used to evaluate the output and productivity of the

organization. The top management of Pak Hero Industries considers that price is an

efficient form of control because managers can compare prices and profits to evaluate the

efficiency of their corporation. This technique can be applied in this company because: a)its outputs are sufficiently explicit for a price to be assigned e.g. motorbikes and

rickshaws and b) competition exists e.g. Honda is a competitor of Pak Hero in the

motorbikes industry. Top managers of production, marketing and finance departmentsalways use the price mechanism to evaluate performance in Pak Hero Industries. The

corporate sales and costs are summarized in a profit and loss statement that can be

compared against Pak-Heros competitors Honda and Yamaha. The company also usessome elements ofmanagement control systems for control such as operating procedures

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and operating budget. Operating procedures include rules and regulations and policies

that prescribe correct behavior and is a continuous process.

Recommendations:

Although the current control systems seem to work effectively in Pak Hero it still has

some deficiencies. We recommend that the organization being fairly bureaucratic instructure should consider using certain elements of management control systems for

control. These elements are:

1. Statistical Reports

The company can use periodic statistical reports to monitor non-financial

performance such as output volume and quality. These measures will help the

management to identify problems in the early stages instead of leaving them to swell.The case study has shown that Pak Hero was quite late in recognizing that its supply

of motorbikes was inadequate as compared to the demand. This problem could have

been easily detected early on if a practice of measuring output volume against that of

competitors was being applied in the organization.

2. Reward Systems

The company, with the exception of the production department, currently does not

have a reward system to encourage the outstanding employees. We recommend that

the human resources and administrative department should immediately initiate a

reward system which offers incentives for managers and employees to improveperformance and meet departmental goals. For this purpose the management may use

any performance appraisal system such as Management By Objectives (MBO) to

evaluate performance and set targets for next year. This way employees and managerswill be more motivated to perform and at the same time the organization can also

ensure that its goals and objectives are met adequately by all departments.

Conclusion

Our analysis shows that there are many problems in Pak Hero like lack of coordination

and communication between departments, weak relationship with its suppliers and a lotof bureaucracy which limits information and little utilization of information technology.Span of control is narrow because of vertical structure and as the culture is rigid so

changes are applied very late. The company can overcome these problems by following

the recommendations we have given in the report and achieve its goal to be a low costleader while providing products of comparable quality to its market.

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Appendices

Appendix: A

PAK HERO INDUSTRIES (PVT) LTD.Organizational chart is given below.

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PRODUCTION:

Currently factory is producing 180 cc, 333 PH auto rickshaws. Auto rickshaws areproliferated in 8 brakes each rickshaw contains 12 volt CDI system for front lights and

have loading capacity of 280 Kg. Average weight of auto rickshaw is 210 Kg. Price of

the auto is half that of imported vehicle, so as to enable an average buyer to have an

access to the price. Two months comprehensive guarantee and five years guarantee onframe is given on sale of auto. All the spare parts of the rickshaw are internally

manufactured which includes gear box, wheel box, chassis, and wheel brake with 280

Kg. power. Management also intends to launch 120 cc motor cycle and 180 cc scooter in

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the market in near future. These products will be sold at half the prices of other locally

manufactured products with international brands.

AREA OF OPERATION:

Presently companys product is sold in all the four provinces of Pakistan. Due to highquality in commensurate with the international quality standards Pak Hero has gained a

good reputation among dealers and ultimate buyers and the company is achieving

significant increase in product sale in all the provinces of Pakistan. The products thecompany is currently producing are:

1) Motor cycle

2) Rikshaw

3) Scooter

Motorcycle: In Pakistan, the ratio of the people using 70CC motor cycles is

higher than the users of other motor cycles. PAK HERO introduced PH 70CCmotor cycle to fulfill the demand of people who wish to have 70CC motor cycle.

PH 70CC is cost effective and has capacity to travel 70 km per liter.

Rickshaw: PAK HERO auto rickshaw is wholly manufactured and assembled inPakistan with the consultancy of the foreign experts. PAK HERO rickshaw is

manufactured according to the international standards. PAK HERO auto rickshaw

has the following competitive advantages over its competitors.

1- Less Consumption of Petrol2- Best Pickup

3- Varied Colors

4- Less smoke releasing5- Easy to drive

6- Control on noise

Scooter: PAK HERO has launched its scooter in the market with the followingdistinctive features.

1. Available in 5- different colors

2. Comfortable Seats

3. More Safety4. Less Petrol consumption

STRUCTURAL DIMENSIONS OF ORGANIZATION:As there is vertical hierarchy showing narrow span of control, standardize procedures are

being followed in the organization. The structure is also centralized. As this industry ishighly competitive, the company provides frequent training to its employees.

a) The strict policies and procedures are being followed which show formalization. Some

are given below for different departments:

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1. FUNCTIONS OF MARKETING DEPARTMENT:

1)Developing sales forecasts and preparing budgets for the marketing department.

2) Devising advertising and publicity material.

3) Selecting appropriate publicity media.

4) Organizing and conducting other sales promotional activities.

5) Conducting special consumer survey.

6) Preparing research and publicity budgets.

7) Arranging and recommending and appointment of dealers to the Commercial

Manager.

8) Negotiating credit terms and arranging to fix credit limit with the dealers in

coordination with the Finance Department.

9) Submitting periodical reports to the Management or appraising the progress andinitiating control action.

2. Functions of Purchase Department:

The purchase department deals with the purchase procedures in connection with the

purchase and payables and the duties and responsibilities connected thereto have been

indicated as follows.

1. Maintaining an up to date list of suppliers and keep on exploring fresh and

competitive sources of supply.

2. Receiving Purchase Requisitions for procurement of materials, spare parts,

and specialized services both from the local market and abroad.

3. Initiating inquiries, receiving and reviewing quotations, consulting the

requisitioner about technical specification and finalizing the terms of

purchase order.

4. Preparing Purchase Demand and getting them approved by the appropriate

authority and informing the requisitioner if his purchase request has been

rejected.5. Issuing Purchase Orders, following up with the suppliers, receiving Goods

Received Reports from the General Store, and settling the bills (invoices) of the

supplier.

6. Communicating annual requirement of Parts to the Management and

suppliers.

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7. Arranging a contract of purchase of parts and services with the suppliers and

brokers on the basis of annual requirement.

8. Arranging lifting of spare parts from the suppliers within the specified

period.

9. Obtaining import licenses from the Government authorities for materials to

be imported.

10. Coordinating with the Chief Accountant for opening Letters of credit and

subsequent processing of documents for clearance purpose.

11. Remaining in contact with the clearing agent to ensure prompt clearance of

goods and their safe delivery to the Mills.

12. Keeping cordial relations with different brokers, Customs Department, the

Ministries of industry and commerce and Supply.

13. Submitting reports and proposals to the CEO which may help in

initiating control action.

14. Keeping all the records of the department under lock and key and to treat

them as confidential.

15. Helping the internal Audit staff in conducting periodical internal audits.

3. Functions of Production Department:

To maintain statistical records of inputs of raw materials and production ofrickshaws, motorbikes and scooters.

To work out daily efficiency reports for the Assembly Department

To prepare daily performance report for Quality Control Section.

To prepare and dispatch all Government returns concerning production

data, as and when due.

To take stock in process in assembly, on the 1st day of each month and at

the close of Financial Year and submit the summary to the Cost Accountant.

To prepare monthly reconciliation accounts and complete them by 10th of

every month for:

o Raw materials consumed;

o Products manufactured;

To keep under lock and key the production and other records of the section

and to treat them as confidential.

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To adhere to the Managerial Policies and to submit any other reports which

may help in planning and initiating control section.

Functions of the Cost Control Department:

Cost control is the sub department in the organization. Its functions are given as follows:

1. To prepare monthly cost allocation sheets from the monthly Trial Balance.

2. To allocate service department cost to production cost centers on an equitable

basis.

3. Based on above, to work out unit cost of all the raw materials.

4. Valuation of stocks in process and finished goods lying in the factory

(excluding finished goods lying in the warehouse).

5. To prepare monthly cost control sheets for each cost centre compared with thebudgeted figures and that of the last month, for control purposes.

6. To prepare such analysis that may be required by the Management for its

policy decisions.

7. To adhere to the Managerial policies and to submit any other report/analysis as

required by the Management for initiating control action.

8. To keep all the records of the cost section under lock and key and to adoptsuch appropriate measures which are necessary for the safe custody of the

same, and to treat all the records as confidential.

Appendix: B

SALES & MARKETING DEPARTMENT

GENERAL MANAGER

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SALES & MARKETING

Appendix: C

PURCHASE DEPARTMENT

PURCHASE MANAGER

31

MANAGER SALES

ASSISTANT

MANAGER

ASSISTANT

MANAGER


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MANAGER LOGISTIC STORE AND PARTS

PURCHASER

ASSISTANT ASSISTANT ASSISTANT ASISTANTLOCAL IMPORT

PURCHASE

Appendix: D

FINANCE & ACCOUNTS DEPARTMENT

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GENERAL MANAGERFINANCE & ACCOUNTS

FINANCE MANAGER CHIEF ACCOUNTANT

CHIEF ACCOUNTANT

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CASHIER SALES & PURCHASES & SALES TAX AND

RECEIVABLES PAYABLES ACCOUNTANT

ACCOUNTANT ACCOUNTANT

34

FINISHED GOODS

STORE ACCOUNTANT

STORES AND SPARES

ACCOUNTANT HEADING TWOSTORE ACCOUNTANT

ASSISTANTSALES TAX

ACCOUNTANT

GENERAL

ACCOUNT


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FINANCE MANAGER

EXPORT L/C.AND RECEIVABLES BANK ACCOUNTANT

ACCOUNTANT

ASSISTANT BANKACCOUNTANT

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Appendix: E

This study is being carried out to determine the variety and analyzability of the tasks and theculture at your organization. Your participation will provide us useful insights for our research

project.Your attitudes, preferences, and opinions are important to this study; they will be keptstrictly confidential.

DIRECTIONS: PLEASE READ EACH QUESTION CAREFULLY. ANSWER THE QUESTIONBY MARKING THE APPROPRIATE BOX THAT REPRESENTS YOUR RESPONSE(S).

1. Which department do you work in at Pak Hero Industries? (PLEASE FILL IN THE ONEAPPROPRIATE BOX)

Production Sales & Marketing Information Technology Purchase HR & Administration Finance & Accounts

2. About how many of the tasks which you perform daily are same?

Almost All Almost 3/4th Almost Half Almost None

3. To what extent would you call your work routine or repetitious?

A large extent A little extent Somewhere between large and little

4. How much do you agree with the following statement:People in this department do the same job in the same way most of the time.

Definitely agree Generally agree Neither agree nor disagree Generally disagree Definitely disagree

5. To what extent is there a clearly known way to do the major types of work you normallyencounter?


6. To what extent is there a clearly defined rule or practices that can guide you in doing yourwork?


7. To what extent is there a sequence of steps that you follow in doing your work?


Now just a few more questions to get an insight about the culture that prevails in PakHero.

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(continued)

8. How do you address your immediate senior or supervisor (e.g. Sir, by name etc.)?

9. Which word(s) are used to refer to your clients?

10. Are there some phrases that are specific to the company (e.g. store hall or store room)?

11. Which word(s) do you think you use the most in a days work at Pak Hero (e.g. Sir, file, pen)?

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Appendix: F

PAK HEROS WEBSITE

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Documents

H. Waqar Akhtar( [email protected])