At 8:00 a.m. on the first day of 2018, it was still early for the full work of Jinnah Engineering Works and Foundries (Jinnah) to start. Relishing the silence in an otherwise noisy office, Jinnah's director Hamza Afaq was pondering the consultants' recommendations for the changes at the foundry. Since its inception in 1950, Jinnah had grown to become the second-largest foundry in Pakistan. However, this growth brought its own problems, including internal inefficiencies resulting from a lack of formal workforce planning. The company's practice of hiring temporary workers daily, the absence of long-term planning, and a high attrition rate added to the issues. As the first step in dealing with the human resources (HR) problems that plagued the company, Hamza had partnered with HR consultants. These consultants, after a thorough analysis of the company, had presented their recommendations, which would benefit Jinnah but might be difficult to implement in the context of the company's long-established processes. Hamza now had to make a decision about how to implement the changes without demoralizing the staff or causing delays in production.

HISTORY

Jinnah started its operations in 1950. Since its establishment, it had emerged as a prominent name in the foundry and machining business in Pakistan. The company developed high-end products locally to replace imported products in the market. Jinnah provided a variety of products, ranging from plain carbon tospecialized alloy steel, thus offering a wide range of customized products according to clients' requirements. The company's major clients included Millat Tractors Limited, Al Ghazi Tractors Limited, and Pakistan's defence industry.

The manufacturing unit of the company was located in the industrial city of Faisalabad. It enjoyed advantages as an attractive employer for semi-skilled and unskilled workers in the nearby areas. Though Jinnah had experienced some financial difficulties not long ago, in the recent past, regular demand for its products had led to uninterrupted production cycles, thus limiting the impact of unexpected highs and lows in production demands. Keeping these production levels in view, the company had stepped up its modernization efforts on multiple fronts by introducing a new plant and machinery in the foundry section,advanced computer-controlled machines in the machine shop, and system improvements such as enterprise resource planning (ERP) implementation and HR restructuring at the organizational level.

Muhammad Afaq, along with his two brothers, ran the factory as a family owned business. He held the position of chief executive officer (CEO), while his two brothers worked as directors of operations and finance. Overtime, sons of the three brothers had also become involved in the factory as assistant directors. Hamza Afaq, son of the CEO, had joined the factory in mid-2013 after completing his engineering degree at the University of Manchester in the United Kingdom. Hamza had a critical eye for problem identification and a keen interest in seeking long-term solutions through process restructuring, automation, and control implementation.

ISSUES IN THE FACTORY

Soon after joining the business in 2013, Hamza identified some critical and chronic challenges faced by the company, which he perceived to be a result of poor management practices, a lack of policies, and weak and unclear HR structures.

One issue the company faced was a high turnover of skilled and semi-skilled employees. The company was unable to retain these employees over the long term. Hamza attributed this problem to the company's lack of formal, long-term employment policies. Secondly, there was no clear chain of command or organizational structure and no clear career path for employees. This gave rise to problems in reporting and monitoring and, most importantly, it led to ad-hoc decision-making. There was also some duplication of job tasks and responsibilities, and this had become a potentialsource of conflict, leading to wasted resources and a culture that promoted a "blame game." Thirdly, Hamza noted a lack of long-term orientation or proper long-term planning. The company predominantly followed a makeshift, short-term approach toward production forecasting (which currently covered a maximum period of one year), growth strategizing, and human capital planning. Apart from this, Jinnah expended no processes, resources, or efforts toward making long-term strategic decisions in any of its functional areas.

A few months after assuming his position and assessing Jinnah's operations, Hamza contemplated the extent to which the challenges faced by the business could be attributed to the nonexistence of a proper HR department. Though histeam had hired an HR officer to manage HR-related matters, it had yet to formally establish a proper HR department. In the absence of such a department, employee relationship and management issues were addressed mainly by the time office, respective departments, or the company's directors. The company had no organization-wide HR management policies or practices, largely because non-HR staff had been dealing with HR-related issuesand this had led to issues such as high turnover, employee dissatisfaction and demotivation, and a lack of career development and standardized training opportunities.

In order to solve these issues, the company initiated a series of studies and audits, accumulating data for analysis. This exercise shed light on another significant issue with the authenticity of the data, which was essential for undertaking any process-oriented changes. To combat this issue, the company had no option but to implement a new information technology (IT) ERP system.

IMPLEMENTING THE ENTERPRICE RESOURCE PLANNING SYSTEM

With the China-Pakistan Economic Corridor (CPEC) around the corner, Hamza realized that the company's days of operating with traditional, orthodox methods were numbered. Family owned businesses in Pakistan had what was known as a seth culture, where decision-making lay in the hands of a single person or owner and governance was through an informal system. In this context, setting up an HR department was considered unnecessary; things like hiring, promoting, and firing employees and handling grievances were all done on a case-by-case basis by the top management. While this approach worked well with a small number of employees, it became challenging when companies grew, and it could lead to unmanageable circumstances at times, which could potentially halt further growth.

As in many other family owned businesses, decision-making at Jinnah was also centralized. Strategic decisions regarding launching a new product or signing a new client and tactical decisions regarding hiring, promoting, and firing employees were all dealt with by individuals rather than departments. This approach had worked very well for the factory in the initial years, but over the past decade, when exponential growth had led to a 100 per cent increase in the factory's workforce, formal procedures had to be put in place to deal with such matters. Management processes had to be automated in order to save time and effort. Hamza pointed out, ""You cannot control what you cannot measure, and to measure correctly you require authentic data, which would lead to better decision-making."

The first step of Jinnah's ERP system implementation involved deployment in the accounts and supply chain modules. Following the completion of this step, the deployment moved on to the maintenance, payroll/HR, and production modules. However, Hamza soon realized that the incorporation of a new IT system alone would not help, and he decided to restructure the accounts department, which had been running according to the same practices for the last 20 years or so. New employees were recruited and trained strategically, and they were slowly embedded in the team, replacing any trouble makers. Initially, a senior chief financial officer (CFO) was hired to be a key decision-maker and the head of the team, but due to weak HR and management policies, he could not be retained in the factory.It took some time before a young, motivated professional joined the company in the CFO position, and the department progressed under this new CFO's supervision.

The decision to implement the ERP system was met with some expected resistance from the top management and senior employees, who raised questions regarding costs and benefits associated with the initiative. Hamza, however, who could foresee the need for this investment in the near future, stood by his long-term vision, taking his inspiration from some modern companies in Pakistan that had developed international reputations. Despite these impediments, after two years of constant struggle in 2014-2016, the implementation achieved initial success. Departments were restructured and given more autonomy, whereas interference in daily activities by top management and directors significantly declined. This decentralization also led to better integration and improved controls.

HUMAN RESOURCES CHALLENGES

While the ERP system was gradually taking over from Jinnah's traditional management, multiple HR issues still held the factory back from growth and modernization. The major issues were an absence of formal HR procedures and policiesand the absence of an HR department. The presence of informal procedures created stress and anxiety and increased the workload of the production supervisors, who had to look after HR issues in addition to production. Hamza felt that these issues meant that the 70 per cent of the total workforce that was employed at the lower levels in the hierarchy (see Exhibit 1) were not being heard, whereas supervisors and middle management enjoyed excessive powers, and this resulted in unskilled employees being exploited by senior management. The majority of lower-level factory workers earned daily wages rather than a monthly salary.

In the previous few decades, as the factory had grown, so had the number of employees; however, more employees had been added as temporary or daily wage workers rather than as permanent members of the payroll. There were several reasons for adopting this approach. The main one was that the company was dependent on the production targets given by its clients, which were in turn dictated by various factors. For example, tractor demand was dependent on unforeseen circumstances such as weather, infrastructure, funding, and government policies. Therefore, despite efforts to document how much production would be required in the following year, and consequently how many employees would be needed to fulfil targets, the projections were never fully accurate. This meant that daily wage workers had to be hired to cater to these uncertain production targets. Once these targets were achieved, some or most of the temporary employees (depending on the hiring) were let go.

However, in the previous three years (2014-2017), the factory operations had become more streamlined.

This was partly because clients had provided Jinnah with longer-term production orders due to an increase in construction work in the country and a focus on infrastructure development, including CPEC projects. This meant that the company was better able to predict production targets and the number of workers needed to achieve those targets. Despite these improvements in the production and planning process, employees were still being hired on an ad-hoc basis.

To work toward the resolution of these HR issues, in January 2017, Hamza contacted the business school at the National University of Sciences and Technology to discuss the possibility of an HR project with the factory. The business school involved its HR faculty, and negotiations on deliverables and the financial aspects of the project commenced. The HR consultants were given details about the company's issues and the possible outcomes that management wanted. Following a few months of negotiations, in March 2017, the company signed on to a project with the HR consultants from the business school that comprised four phases. Phase 1 was intended to run a diagnosis across the company to see if the inception and establishment of an HR department was a feasible option. Phase 2 was intended to analyze the current structure of the organization and conduct a job analysis of the key positions in the factory. Phase 3 was focused on designing core HR policies for the company, and the phase 4 involved providing recommendations for organizational restructuring and enhancement of employee satisfaction.

ABSENCE OF EMPLOYEE GRADING STRUCTURE

The four phases were divided among four HR consultants from the business school with the head of the HR department overseeing the entire project. As the HR consultants started working on their respective phases, they faced a problem. During the negotiation, Jinnah had provided information about the number of employees and their rough classifications (see Exhibit 1), but as the project progressed, it became apparent that there was no grading structure in the factory, and it was not clear how an employee progressed from one designation to the next. Answers to questions of experience, skills, and education varied as HR consultants talked to employees at different levels. Overall, there were 762 employees in the company and 88 different designations, which rose to 195 when sub-designations were included. Some of the designations existed in only one department, while others were spread across the company and even duplicated with different names (see Exhibit 2). The only way to categorize them was based on the compensation they were paid. For example, a "helper" was paid the national minimum wage (Rs5001 per day for a 12-hour shift), which meant that employees in other departments with different designations who were being paid the same amount were equivalent to the helper position in the company's hierarchy.

For many years, Jinnah had focused on meeting routine production targets and, for this purpose, it concentrated primarily on daily and monthly production meetings. This resulted in the company adopting a reactive approach that did not support the adoption of aggressive growth strategies.

The organization could be divided into two main divisions or sectionsthe foundry section and the machining section. Both sections included unskilled workers at the lower end, who primarily worked as helpers and provided assistance as desired by the immediate supervisors. Above them were semi-skilled and skilled workers or technicians, who were primarily responsible for achieving production targets as assigned by their supervisors. Each division was then further divided according to specific production processes, and these divisions were headed by supervisors or heads of departments (HODs). This classification was devised based on the significance of the particular production function. For example, if machine shop 1 and machine shop 2 were performing an important interconnected task that was deemed crucial for overall production, then an HOD rather than a supervisor was designated to oversee the machine shops. Additionally, there was an administrative section comprising finance, accounts, store, and other departments. It provided administrative support to different units of the company. At the top, operations were governed by directors and the CEO, who were responsible for overseeing day-to-day operations as well as implementing long-term company strategy.

Hamza and his team listed the positions in each department for the very first time since the factory's inception (see Exhibit 3). While the list classified the rough hierarchy that existed within departments, it further added to the confusion, as different designations existed for employees at the same level. It was also not clear how compensation was determined, as there was no clear hierarchy within the company. To compound this issue, it was revealed that the company was also divided into departments based on the processes of making productsthat is, it was divided based mostly on functions. This meant that there were at least 60 departments in the company.

It was apparent that, without an employee classification or grading structure, Jinnah's HR policies would be as good as useless. The HR consultants would also have difficulty completing phases 2 and 3 of the project in the absence of a clearly defined structure. Therefore, phase 0 was initiated, where the consultants devised a grading structure or employee classification system. This task was anything but easy. Creating a grading structure or employee classification system was not difficult in a new organization, as the CEO or directors could often decide on the hierarchy and hire people accordingly. However, it was an uphill task in an organization that had been in operation for the past 70 years, with 60 different departments, more than 80 designations, and more than half of its employees working as daily wage workers.

THE ISSUE OF DAILY WAGE WORKERS

Grading structures would typically be implemented only for permanent employees, but because fewer than 30 per cent of workers in the factory were permanently employed, this was impractical. The first question that needed to be answered was how to accommodate the daily wage workers within the grading structure. The top management felt that daily wage workers were cost effective and could easily be hired and replaced when needed. However, the HR consultants had a different opinion: they saw this as a major reason for the exponential turnover, which resulted in delays in achieving production targets and imposed heavy indirect costs. The company statistics showed that the average retention of lower-level employees was less than 12 months, which meant that most workers stayed with Jinnah for barely a year.

The obvious solution to this problem was to make these workers permanent, but this was simplistic, considering the number of problems. One problem was convincing the top management that this would not have negative financial implications but would rather have a positive impact on the bottom line. It would also be beneficial for daily wage workers and would offer them an opportunity to have two days off in a month without a deduction of salary. Permanent factory workers at the lower level currently enjoyed a fixed monthly salary of Rs14,000, with two days off in a montha provision not available to daily wage workers. The consultants' analysis showed that a daily wage worker drew an average wage of over Rs20,000 per month due to overtime payments.

The top management was concerned that, if these workers were made permanent, they would draw a monthly salary with an additional two holidays and additional overtime wages. However, the HR consultant had a different opinion: an analysis of the overtime statistics showed that there was no clear pattern between the number of workers and overtime hours (see Exhibit 4). Ideally, the presence of more daily wage workers should lead to less overtime, but it turned out that there was more overtime at times with more workers.

The heads of departments were unaware of this anomaly, and when asked, they were unable to answer why this was the case. The HR consultants felt that it was clearly due to the uncertainty around production targets and the number of workers required to mitigate that uncertainty. Apart from this, the huge turnover of daily wage workers also played a role in increasing overtime.

In long discussions with the HR consultants, the HODs suggested that they regularly had to act as recruitment consultants because the daily wage workers had a high turnover rate and quite often did not show up for work the day after they had collected their weekly wages. This meant that, on any day, HODs could be short of 50 required workers. Including and training new workers on a provisional basis added to costs and caused delays in production. HODs had to struggle every day to find workers who could work in the factory, and this wasted valuable time.

The HR consultants' analysis indicated that employing daily wage workers as 70 per cent of the workforce was costing Jinnah a lot of money. They suggested that a grading structure would only be useful if it were implemented for the entire workforcenot just the 30 per cent of workers who were permanent employees. Hamza and his teamhad a different perception. They believed that workers would not want to become permanent because this would mean a slight compromise on wages (from an average of over Rs20,000 to Rs14,000).

The HR consultants decided to ask the workers for their opinion, and this revealed interesting findings. An HR consultant said to a labour representative, "We are considering making you permanent employees of Jinnah, but it would mean you will have a salary of Rs15,000. Right now, you are drawing over Rs20,000 with overtime." The labour representative's response was, "We would be more than happy. We want to be permanent because it also gives you job security and other benefits. We can also take two leaves in a month." The consultant then asked if the workers were worried about the loss in wages, and the labour representative said no: "We want to be permanent so we have job security. Also social security helps us to get free medicine from government. Right now, we only do overtime when requested, and very often we are not informed about the overtime in advance."

Surprisingly, the workers were not interested in drawing extra wages for overtime. It became evident that job security was a bigger driving force for the workers than monetary benefits. This finding was also news to the management, who had thought that labour could always be driven with overtime or money.

The HR consultants also analyzed the current HR expenses of the company and estimated the change if these employees were made permanent. For example, the total monthly salaries for employees at the lowest level amounted to Rs2,194,834. If the company made them permanent and started giving them the national minimum wage, the expenses would rise to Rs2,576,000a difference of Rs381,166. While there was some increase in the expenses, it was clear that the company would significantly reduce its turnover costs and would have less overtime with a permanent workforce. Quite similar statistics emerged for all other employee levels as well. The consultants shared these findings with Hamza, and it was agreed that daily wage workers would be made permanent over the coming period, in different stages.

Hence, Jinnah was convinced that it wanted to shift its daily, contractual workers to permanent employee status. It was decided that any daily wage worker who had completed five contracts of four months each with the company would be eligible for consideration for a permanent position. Such workers would also be eligible for consideration for other benefits, including medical and group life insurance.

Once the agreement to make daily wage workers permanent employees was reached, the consultants started the work of developing a grading structure. The factory employees could be divided into multiple categories, the first of which was unskilled labour. These employees had joined the factory with no experience and no education; over time, they were trained, and if they stayed with the factory, they progressed through the ranks. They started in entry-level positions as helpers, and could then move on to become technicians, senior technicians, supervisors, senior supervisors, and foremen in the factory

The second category consisted of employees who came with 10-12 years of education and diplomas in engineering. These employees usually ran the departments (processes) and often held the position of HOD. Between HODs and helpers, there were five other levels of employees.

The third category consisted of engineers who held university degrees (16 years of education); they were hired directly above the HODs. They did not require any experience; hence, they often lacked basic understanding of factory processes. The fourth category consisted of employees who worked in support departments such as auditing, marketing, and administration. These employees usually had 10-15 years of experience working at different designations. The fifth and final category consisted of the owners of the factory, who held the positions of directors and assistant directors.

There was confusion in this structure. For example, it was not clear how much experience or education a helper would require to progress to other ranks. In some departments, there was a designation of senior supervisor, while other departments had a foreman position. It was not clear if they occupied the same level of the hierarchy or were on different levels. In some cases, a helper would be promoted to technician within six months of joining the company, based on the HOD's discretion. In other cases, helpers worked in the same designation for 10 years. Some departments were particularly popular among helpers, who wanted to work there rather than in some of the other departments, where the physical environment was relatively harsher; there was no incentive for working in a harsher environment, and all helpers drew the same daily wage.

The non-technical employees were also hard to categorize. In some cases, the non-technical departments were led by employees with 14 years of education, and in some cases, 16 years of education. The experience requirements and salaries also varied among employees at the same level. Engineers were given a different salary altogether, in order to increase retention.

The biggest task for the HR consultants was to propose a standardized employment structure. The HR structure and salaries also needed significant effort. For example, employees within a single grade in a single designation received variable salaries, without any logical reason or explanation. An employee working for five years could possibly be receiving a lower salary than a newly hired employee with the same designation and in the same department. The consultants decided to divide the employees into two main categories: labour and officers/management. The staff (G) categories ascended from the basic grade, G10, to G10A, G11, G11A, G12, G13, G14, and G16. Similarly, officers or managers (M) ascended from the basic officers' grade, M16, to M17, M18, M18A, M19, M20, and M21.

The next task was creating specific designations for these grades. Hamza, the consultants, and HODs discussed this and decided that the designations would be based on education and experience requirements (see Exhibit 5). A similar exercise was conducted for the remaining grades, which included a proposed grade, designation, required qualification, experience, and performance review period. After much deliberation, Hamza approved this structure and the salary structure to ensure transparency and accountability to employees. Basic salaries were approved for G10 and G10A grades (Rs14,000) and for G11 and G11A grades (Rs15,000). These salaries met the national minimum wage.

However, the major task was implementing the grading structure. While the factory had taken a good first step with this internal progression, the lack of vacancies in the upper levels of the hierarchy created an issue. There could also be disparities when people were not competent enough to be promoted to the next grade. A new employee at the same grade and designation would be paid the same as any senior helper who had been working in same department at the same position for five years. Keeping the retention issue in mind, the company decided to include loyalty as one basis for determining salaries. For example, people who had been working with the company for a certain period of time would be given an additional amount as an experience allowance. Jinnah also decided to introduce a loyalty allowance based on the employee's number of years of service. As most of the unskilled employees had been with Jinnah for less than a year, it was relatively easy and cost-efficient to introduce this concept, which could be further fine-tuned in coming years.

At this point, the major task for Hamza was to implement the employment structure. With too many employees on daily wages and large disparities between the salaries of employees within similar grades, the big question was how to implement the structure, while causing as little discomfort and dissatisfaction among employees as possible. It was apparent that some employees would be downgraded, while others with better qualifications would be elevated. How could senior management be convinced, considering that some old and troubled employees could be downgraded in the hierarchy? Was changing the entire employment structure a wise decision at a time when major changes were being implemented across the organization?

QUESTIONS

1. From the case above. Provide an analysis of the case.

2. What is the case based about?

3.List and explain the problems in the case.

4.What are some solutions for the problems you have listed? Explain them.

5. What are some recommendations to ensure the solutions you've mentioned are successful. Explain them.