Corporate Governance, Organizational and Product Management

Organizational management and the creation of adequate human resources departments to support not only working relationships but also supporting the organization in its external business relationships is a serious challenge for modern managers.

Product companies should focus their attention on the topic. We present a real Case Study that can be a good basis for thinking about your product strategy.

Before continuing with the story, we recommend that you familiarize yourself with the following topics:

What is production management

Before addressing production management, let’s discuss what production is. What is production? It is a process of creating goods and offering services.

Emergence and development of Industrial and Production management

Industrial and Production management have a long history and their development began in the early years of technological prosperity.

Govardhandas Cements Ltd (GCL) was a well-known product company in the north of erstwhile Hyderabad State, now merged into the Karnataka state. It was during the British regime that GCL ventured into the limestone belt offering tremendous scope for the commercial exploitation of limestone quarries to produce cement as a prime input in major construction activities such as the construction of dams, railway sleepers, cement pipes, and major buildings in and around city centers. The company after a modest start had grown into a large unit supplying cement to all major projects in the country; it even started exporting to some neighbouring countries as early as the 1960s. Read more: Product Acquisition: A Case Study of a Hostile Takeover

Engaging local labor

In the initial days, GCL mostly engaged local labor at the quarry, and for short-distance hauls of trolleys, and for the packing and loading work at the quarry and the cement factory, which was located about five kilometers away from the quarry. Most of the engineering personnel were hired from the locality itself, and the senior technical managers were recruited from the Indian Institutes of Technology (IITs) and from its competitors. The company, since it was away from any town or major city, had a large housing colony with separate locations for its workers and its managerial personnel. The colony had several facilities for the family members of the employees, including a school that taught up to the tenth standard and a huge playground for the children of the employees. It also had a cinema theatre, which was run by the company, for the entertainment of the colony residents. A hospital managed by the company provided all the immediate medical needs of the township. The entire township was like an extended family with the promoters working as guardians for all of them. Every employee along with his or her family members who lived in the township felt totally secure, peaceful and happy, and enjoyed a great sense of mutual camaraderie.

Major expansion and diversification in the business

The 1980s witnessed a major expansion and diversification in the GCL business. The GCL got into a joint venture with an American company for the manufacture of major cement-manufacturing machinery and also got into major fabrication work for nuclear plants and aerospace-research projects. This caused a major shift of focus at GCL towards globally competitive fabrication and machining technology, bringing in highly-experienced technocrats, both Indians and a few foreigner, who could ensure appropriate knowledge and experience to drive the activities at GCL.

Recruitment and Human Resources (HR) policies

The GCL had to bring about major changes in its recruitment and Human Resources (HR) policies. The company started recruiting only engineering graduates or diploma engineers at the worker level at much higher levels of salaries and wage structures. The workforce for the new projects had to be recruited from college campuses from the major cities in India. The facilities in the township underwent a major overhaul to include self-contained, semi-furnished accommodation for the new recruits, along with incorporating a clubhouse, golf course, etc. in the township premises. The company’s guesthouse had to be renovated to provide five-star facilities, such as air-conditioned rooms and continental food along with facilities such as a swimming pool and a billiards room. These facilities were essential since the foreign executives preferred to stay with their families at the guesthouse instead of the independent, furnished bungalows that were constructed to accommodate the senior executives. The entire township, in view of this rapid expansion in GCL’s activities, had to be demarcated into two separate sections: one for the older employees of the GCL cement factory and the other for the employees and families of other major projects. This brought in a major cultural barrier between the inhabitants of the two sections of the township. Even the erstwhile executives of the GCL cement unit started feeling ignored by the top management who were mostly busy with meetings and discussions with the foreign delegates and executives of machinery and fabrication projects. The serene and peaceful atmosphere started getting disturbed on account of the varied lifestyles of the employees, both at the office and township levels.

The third-generation members of the promoters’ family were more interested in glamorous lifestyles and cared less for the traditional practice and work styles of the older executives and their next-generation family members who had joined GCL as per the past recruitment policy of GCL. The main focus of the promoters now seemed to be on making maximum profits from the new projects and transferring a major portion of the earnings into the foreign banks accounts of their family members, and investing in assets and real estates in Hyderabad, Chennai and Mumbai. The relatives of the promoters were allotted shares in GCL, and funds were provided from the GCL reserves to invest in lucrative markets like multiplexes and malls in other cities. The bungalows of GCL directors started getting crowded by film actors who were friends of the younger generation. Nightlong cocktail parties at the directors’ bungalows became regular features of nightlife at the GCL township.

The townships’ altered social set-up got the local youth attracted to drugs, and quarrels started becoming frequent among the youth. These youngsters, who had studied in the township school, could not secure employment in GCL due to the changed rules and standards of qualifications for employment in the company. Retired employees were forced to vacate their houses in the colony since the company could no more provide employment to their children. There was, therefore, dissatisfaction among the employees and their families towards the changed attitudes of the promoters. Most of the employees shifted their wards to Hyderabad and other cities for education beyond matriculation, since the GCL township did not provide vocational education. In fact, even the high-school-level education provided at the GCL colony had deteriorated due to management’s negligence, and getting admissions in the city colleges for the pass-outs from the GCL township school was also becoming difficult. However, facilities were provided for the children of the company’s new project employees to stay at Hyderabad in a company-owned hostel with full facilities like free boarding and lodging and financial support towards school and college fees.

There were apparent concerns among the stakeholders of GCL towards the lack of transparency in the financial dealings of the family members of promoters, whose expenses on fun and frolic started getting absorbed into the official expense accounts of GCL; further, unapproved investments in personal assets of promoters’ relatives became rampant for suitable articulations in the company’s account books. Most of the eligible family members were included as board members of the holding company GCL and were nominated as directors in the subsidiaries of GCL. All these directors earned hefty fees and commissions from GCL and also from its subsidiaries. Even some of the independent directors were personal or family friends of GCL’s promoters. The representatives of government agencies, such as central excise, etc., who were provided residential accommodation at the GCL township, got used to the wayward records of transactions and corrupt practices that took place at GCL and its subsidiaries. They were happy that their personal and family needs were being taken care of by GCL and, therefore, they never raised any objections against such transactions, which violated various tax and duty liabilities. The politicians from the constituency were extremely happy to be the honoured participants in the frequent lavish parties arranged at the directors’ houses. They were further kept satisfied with costly gifts from the GCL promoters on several occasions. Besides, they were promised financial support for political purposes as well as votes from the majority of GCL employees. In total, the GCL and its subsidiaries managed to keep everyone happy who had long discarded ethical values and cultural fragrance, which had been specific to GCL and had resulted in GCL’s enviable success and cordial environment both at work and in the township during the past periods of happiness and harmony.

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