Summary should briefly analyze the central problems and issues of the case and p

Question

Summary should briefly analyze the central problems and issues of the case and provide some analysis and suggestions. No more than one page. Thank you.

Engro Chemical Pakistan Limited—Restructuring the Marketing Division

In November 2008, Khalid Mir, General Manager Marketing at Engro Chemical, a fertilizer company in Pakistan, was looking at the results of an internal survey to ascertain how well the newly implemented sales structure was functioning. The company had undertaken a restructuring of the marketing division to retain mid- level employees and to become more customer focused.

Feedback from multiple sources about the new structure had flagged a number of issues, which included (1) the need for development of new competencies and further revision of standard operating procedures to prepare employees to handle changes in their tasks; (2) the fear and anxiety of employees losing their authority and power; (3) the confusion resulting from new reporting relationships, especially relating to the support functions; (4) the Tier IV syndrome, which referred to the uncertainty and dissatisfaction among Tier IV officers regarding their upward mobility; and (5) the lack of coordination with other divisions of the company about the restructuring of the marketing division.

Now, Mir was contemplating his next steps. Should he fine-tune the new structure or was another round of restructuring imperative? What other steps were essential to realize the full potential of the marketing division?

Company Background

Engro Chemical Pakistan Limited was established in 1965 under the name Esso Chemical Pakistan Limited, which was later changed to Exxon Chemical Pakistan Limited in 1978 and eventually Engro1 Chemical Pakistan Limited (ECPL) in 1991, when Exxon divested its fertilizer business worldwide. (Exhibit 1 details Engro’s historical timeline.) Engro Chemical Pakistan Limited was a major competitor in Pakistan’s fertilizer market and the second largest producer of urea in Pakistan with a total production capacity of 975,000 tons per annum, approximately 19 percent of the total domestic production capacity. It was also a market leader in blended fertilizers (NPK), with an annual production capacity of 160,000 tons and was involved in imported phosphate fertilizers. Engro had also successfully diversified into various other sectors through new projects, joint ventures, acquisitions, and mergers (see Exhibit 2 for a list of Engro’s subsidiaries). ECPL’s main production facility was located at Daharki in upper Sindh, near the Mari gas fields. This plant had increased its production capacity nearly sixfold since its inception. The latest expansion plan, which would be operative in the year 2009, would increase production by another 1.3 million tons. This $1 billion project was estimated to bring Engro’s share of total domestic production capacity up to 32 percent.

Culture

Engro Chemical was committed to supporting its culture through policies and administrative frameworks that promoted open communication, maintained employee and partner privacy, and assured employee health and safety. Over 700 employees brought their expertise and dedication to the workplace.

According to Mir:

All employees are valued and their inputs and views are given significance, which builds a friendly environment within the organization, independent of any barriers in communication.

Such an open environment had a positive impact on employee morale and their willingness to continue working in the organization. Engro’s safety, health, and environmental responsibilities extended beyond protection and enhancement of its own facilities and included the distribution, use, and disposal of its products as well.

A significant change could be seen in the culture since 1991 when Exxon divested its fertilizer operations and the company was named Engro Chemical Pakistan Limited.

Nasir Iqbal, National Sales Manager (NSM) in 2008, recalled:

From a bureaucratic and rigid structure, the company has moved on to become a work place where challenges to the status quo are encouraged and new ideas are generated, nurtured and developed, something which was lacking un- der the Exxon management.

Moreover, the dignity and self-esteem of the people were highly valued. Everyone in the workplace was consistently treated with respect and a joint effort was observed to create an organizational environment in which individuals were encouraged and empowered to contribute, grow, and develop themselves and their colleagues.

Need for Restructuring

Toward the beginning of 2008, Mir discovered through internal feedback from the sales teams and field offices that Engro Chemical had begun to face major problems relating to employee turnover, inventory control, low market development, and suboptimal merchandising efforts in its original marketing-division structure. Hence, in March 2008, Mir took it upon himself to convince the upper management about the dire need for Engro Chemical to undertake a restructuring initiative of its entire marketing division in order to work on these areas. The major focus of this re- structuring was personnel and customer driven—a majority of the previous Tier III3 sales force were promoted to area marketing managers, new Tier IV level sales personnel were hired, and the number of personnel working on market development and merchandising efforts was increased.

Original Structure of the Marketing Division

Originally, Engro Chemical had divided Pakistan into six sales regions with one regional manager (RM) responsible for each region. Exhibit 3 presents the original structure of the marketing division. The regional managers reported directly to the national sales manager who in turn reported directly to the general manager agribusiness. The regions were further divided into various districts; each district had one sales officer (SO), and there was one technical ser- vices officer (TSO) for every two or three districts. Each region also had one distribution officer (DO) and several warehouse in-charge officers.

At ECPL, the criterion for selection of sales officers was an MBA from a respected institution for the various positions in the field. The graduate was then gradually promoted over a stretch of five years, after which the designation of senior sales officer was received. Based on the level of performance, a senior sales officer was eventually promoted to one of the regional manager positions in approximately four to six years.

The sales officer was responsible for meeting sales objectives, cost controls, and profit maximization through collaboration with the technical services officer and distribution officer. The latter in turn was responsible for inventory control and warehousing in the entire region and ensured a smooth flow of supply to meet regional demand. The TSO was responsible for conducting market development activities through meetings with farmers and educating them on agronomic information and fertilizer usage.

Problems with the Original Setup

When Mir sat down with Nasir Iqbal in an informal meeting to discuss the restructuring process, they realized that there were three main reasons why the original structure needed to be changed.

High Employee turnover

When the company evaluated current and previous employees through surveys and face-to-face interviews, it was discovered that there was a low level of job satisfaction in Tier III of the organizational structure, specifically among MBA sales officers. The main cause for this was a mismatch between the job content and employee skill levels. The sales job required long hours of travelling and relocation to distant rural areas of Pakistan; there was no supervisory role and very little managerial application. Furthermore, the promotions in the first five years were solely salary based; there was no improvement in fringe benefits and no addition to job content.

In contrast, the MBA graduates being hired were highly ambitious individuals, with a high need for achievement.

Mir realized that Employees would lose motivation in three years or less and there was a general feeling of underemployment, which naturally led to dissatisfaction and high turnover.

An additional external factor that contributed to the high turnover rate was the better opportunities that existed in the FMCG (Fast Moving Consumer Goods) and financial sectors of the country’s urban areas.

Weak Market Development

The limited number of TSOs for each region resulted in long travel times for TSOs. Some TSOs reported spending almost 50 percent of their time travelling; as a result, their efforts in market development activities and activity-to- time ratios were significantly lower than optimal. This meant that the tasks that were envisioned for the TSOs were not being carried out in all districts.

Inventory Control

The distribution officer’s primary responsibility included physical audit of warehouses’ inventory. Taking the example of the Multan region, it was seen that one distribution officer had to visit 16 warehouses spread throughout the region per month; this translated into each warehouse being visited only once a month or less. As a result, inventory control was not as efficient as it should have been.

The Change Process

Faced with such difficulties like low morale, high employee turnover, and ineffective market development of new products, there was a general realization by the management that something needed to be done. After conducting a few exit interviews with MBAs leaving the organization, Mir realized that the old structure needed to be changed. One of the sales officers he interviewed claimed that, “in FMCG companies, young MBA graduates like me are given more opportunity in terms of job scope and job status. This is something that is lacking in the current Sales Officer position at Engro.” Mir began to consult experts and held several meetings to discuss his ideas about ways to tackle these problems. He met with Nasir Iqbal, National Sales Manager at the time, and they both agreed that the matter was critical in nature because the dearth of MBAs in the organizational hierarchy meant that there was a diminishing pool for future senior management. Also, the Zarkhez Rejuvenation Study5 that was conducted during this period highlighted the need for Engro to better connect with its customers. One of the consultants that Mir met during the change process advised him to adopt an eight-step model6 to lead the change initiative at Engro. Mir decided to move fast by creating a sense of urgency for bringing about this change.

He held meetings with RMs, the marketing services manager (MSM), and the NSM to form powerful guiding coalitions. He shared his vision of “revamping the rigid fertilizer sales structure to make it more flexible and capable of meeting the needs of its employees and customers” with the top management and sought their feedback. It was found that everyone was in favor of the restructuring. Buy-in from other employees was gained through a series of meetings. Mir held a meeting in each region and shared with the employees his vision of the new structure. In addition, regular notifications and announcements were sent out to the field offices to keep them updated with the changes.

The initial plans were drafted and presented in all the regions to all permanent employees. In the plan, Mir communicated his vision and discussed the benefits of the new structure and addressed any reservations people might have toward the restructuring. It was also the desire and objective of the management that no employee would be laid off during the change process and that a smooth transition would take place into the new structure. These intentions were clearly communicated to all the employees.

Once the management’s vision was conveyed to the regions, it was necessary to ensure that all employees were onboard with the decision and that little resistance would be met during the change process. In collaboration with the other support divisions, including accounting, finance, and IT, a special task force consisting of senior employees was set up to develop new processes according to the revised structure and roles. A Limits of Authority manual was also prepared in conjunction with the zonal offices and the head office, which outlined the basic changes in reporting lines and authority of all members.

Implementation

In March 2008, Engro Chemical went ahead with the restructuring of the marketing division. The first step was the dissolution of the previous sales regions and the formation of three zones; Lahore and Sahiwal regions became the North Zone, Multan and Bahawalpur regions became the Central Zone, and Daharki and Hyderabad regions became the South Zone. (See Exhibit 4 for a map of Engro’s territories.) The sales districts were then grouped into 23 areas based on sales volumes; smaller districts were merged into one area, whereas large districts became areas of the same name. For example, small sales districts like Multan and Muzaffargarh became the Multan Area and large sales districts like Dera Ghazi Khan became the Dera Ghazi Khan Area. Area offices were designed to be located in the sales districts with greater sales volume so as to allow the area marketing managers (AMMs) to effectively address their sales responsibilities. (Exhibit 5 shows the new structure for the marketing division.) It was anticipated that this new structure would be able to compete better against Engro’s main and biggest competitor, Fauji Fertilizer (FFC). Exhibit 6 presents FFC’s probable sales structure based on market intelligence and can be used for comparison to Engro’s structure.

In terms of manpower, a zonal marketing manager (ZMM) was in charge of each zone. The hierarchical level for this designation was equivalent to the NSM in the old organizational structure. The three ZMMs reported directly to the GM marketing. The ZMMs consisted of the previous NSM and the two experienced regional managers from the previous setup. New positions for the remaining regional managers were created at the head office in Karachi.

The top performing SOs and TSOs from the previous structure were promoted to area marketing managers. Each of the new areas was headed by an AMM who was responsible for meeting sales targets and market development and distribution in their area. Effectively, their role was equivalent to that of the regional managers from the previous setup but with a smaller geographical and market spread. Each district had one sales officer and one market development officer (MDO) (replacement of the technical services officer). In addition, each area had one distribution and merchandising officer (D&MO) (replacement of the distribution officer). Quantitatively, this meant that there were approximately 87 percent more man-hours on market development and 110 percent more on distribution and warehousing.

The D&MO was also responsible for merchandising activities in his area. In the previous setup, there was no specific officer assigned for monitoring and carrying out merchandising activities. As a result, most material was left at dealer stores without proper display or follow-up. The D&MO’s responsibilities also included visiting dealer outlets and providing them with merchandising material at the correct time as well as ensuring proper display of the material and products.

Another replacement was the designation of a senior market development officer (SMDO)8 equivalent to the technical services advisor (TSA) of the previous setup. Each zone had one SMDO who, in the absence of the ZMM, was in charge of their respective zones. The SMDO was also responsible for the overall strategy development and execution of market development activities in areas in collaboration with AMMs and MDOs. Each zone had one SMDO who reported to the ZMM.

AMMs, under the new structure, were responsible for handling key accounts per the 80:20 principle, where the top 20 percent of the customers that resulted in 80 percent of Engro’s sales were given the utmost priority. It was the top management’s vision to incorporate this principle into the new structure, thus improving customer relations. This had helped to improve the company’s reputation in the market.

In the months following March, monthly marketing meetings (MMM) were held in order to ensure that the restructuring proceeded per schedule. ZMMs, MSM, HSE coordinator, and marketing coordinator were the core members of this meeting under the chairmanship of GM marketing. Critical issues and areas of improvement were highlighted during these meetings and matters such as hiring of personnel and funding issues were discussed. The role of HSE under the new structure was examined and it was made sure that it was given precedence. Moreover, people were at the heart of all initiatives at Engro, so management was extremely concerned about whether or not they were adjusting into the new structure and this matter was discussed at length during these meetings.

In order to measure the success of the new structure, some performance indicators were identified. The Zarkhez Tracking System was established to measure the improvement in sales for one of Engro’s leading brands, Zarkhez. Through this system, farmer sales were tracked and monitored to assess their satisfaction with the newly launched product. Follow-up interviews were conducted to determine whether or not farmers were content with the product and this helped build loyalty for Zarkhez in the market.

Following restructuring, Annual Zonal Conferences were established for the first time to acknowledge top per- forming Tier IV officers. All zonal employees of Tier II, III, and IV attended this conference apart from head office delegates. This conference provided them with an opportunity to meet the marketing management at least once a year. The first International Marketing Conference (MAR- CON) was held in Bangkok. Previously, MARCON was held within the country, so having it at a foreign location improved the prestige of all those attending it, including the newly promoted AMMs. The theme of the conference was “Engaging the Leader in You” and it was held with the specific intent of giving importance to the newly promoted AMMs and their role in helping to achieve Engro’s sales objectives.

Improvements

Mir assembled a functional team of four individuals under the leadership of a marketing coordinator to conduct an audit to analyze how well the new structure was operating. Some marked improvements could be seen as a result of the restructuring.

Increased Communication Among Employees

Dealers and employees both commented on the ease with which they could resolve their grievances after the restructuring. In the previous structure, there was one regional manager for each of the six regions (Hyderabad, Daharki, Bahawalpur, Multan, Sahiwal, and Lahore) who was accountable for administrating sales in all the areas pertaining to his/her region. In this way, a regional manager in Daharki would also have to deal with the sales officers and dealers in Quetta, which resulted in a communication gap between the regional managers and the field representatives. In the new structure, a new managerial seat of an AMM was added, and these AMMs were designated to all 23 areas of the sales districts. Having a managerial representative in each area eliminated the delay in resolving grievances between the customers, field force, and top management.

Efficient inventory Control

There was one DO for each region in the previous setup, who was responsible for all the inventory checks and audits pertaining to that region. As Mir revealed:

It was impossible for one distribution officer to cover all the districts and warehouses and the inefficiency had be- come apparent to all through quarterly inventory audits that were conducted within the company.

To counter this, the DOs were replaced by D&MOs in every area, who were now able to visit and audit a warehouse more often, marking a significant increase in efficiency of inventory audits. Similarly, the safety audits also tended to become more efficient in the new sales force setup as there was now one AMM for each area responsible for the safety audits in the warehouses of that particular area.

Greater Market Penetration and Exposure

Further efforts were effectively being put into market development and merchandising. With one MDO in every district and one D&MO in every area, greater market penetration in terms of market development and merchandising was ensured. The registered results of these activities included a significant rise in farmer awareness, trial purchases, and dealer satisfaction with merchandising display since the change in the marketing structure.

Greater Job Satisfaction of tier iii Employees in their New Role as AMMs

The MBA graduates hired as AMMs seemed to be more satisfied with the new setup and the overall restructuring effort. In the previous structure, a newly graduated MBA would be hired as an SO and after gathering an average experience of about four to five years in the field, he or she would be promoted to a management position in the regional office as a RM. However, in the new structure, a newly graduated MBA was hired as an AMM and after two years in the field, he or she could be promoted to a management-oriented job at the head office. This change in the structure was observed to provide greater job satisfaction among the Tier III MBA employees.

Quantitative Analysis

The audit team that was initially sanctioned by Mir conducted a quantitative analysis of the restructuring, which revealed that in terms of the change in manpower, there had been a significant increase in the efforts of the company in market development and distribution activities. (Detailed information on the quantitative changes in manning is presented in Exhibits 7 and 8.)

There had been a 44 percent increase in total man- hours, which would go up to 58 percent when all positions would be filled per management’s original plan. This translated into an increase of 248 and 328 hours, respectively. Among the four main functions, man-hours in market development had increased by 116 hours and in distribution by 72 hours. In the new structure, it was seen that at least 74 hours were dedicated to merchandising activities.

Management was quick to realize, however, that this analysis was simplistic in nature since it assumed an eight- hour workday for employees, whereas in reality, field staff spent a variable amount per day, which also included travelling time. Additionally, overtime had not been accounted for. Another imperfection in this analysis was that it did not account for follow-up sales calls conducted by MDOs after a market development activity or by D&MOs after setting up merchandising material. Furthermore, per the discretion of the AMM, employees were engaged in different functions at different times. The AMM was at liberty to utilize his entire area team for sales activities one day and for market development the next. Thus, the figures presenting the analysis in Exhibit 7 were an approximation, albeit one that was determined through interviews with relevant personnel.

Concerns and Challenges

Although there were numerous concerns identified related to the restructuring, the management believed that a lot of these were interrelated. After conducting feedback interviews with employees who were a part of the restructuring process and reviewing the restructuring audit report, Mir identified certain areas for improvement.

In the previous structure, all officials were aware of the procedures pertaining to their job or tasks. For instance, a sales officer was handed out a ready manual of standard operating procedures (SOPs) on the first day of his job. With the restructuring of the marketing division and a fresh flow of newly graduated, inexperienced officials being employed, it was observed that the SOPs needed to be revised keeping in view the change in employees’ responsibilities and tasks. By the end of 2008, SOPs in relation to sales had been revised, whereas SOPs in relation to market development, merchandising, and distribution were still in the process of being revised.

Likewise, with the reorganization of tasks and jobs among the employees, it was observed that people were relatively unaware of or confused about the reporting lines, specifically with regard to support functions. For instance, when an SO in the old structure had to report a delay in the distribution of materials or goods, he could report it to the DO. However, in the new structure, the AMM, who replaced the SO, initially found it hard to determine whom to report to in terms of issues concerning distribution.

An AMM, who had only been involved in sales in the past, needed some exposure to the specifics of distribution, merchandising, and market development. Moreover, the lack of resources, knowledge, and training of the new SOs at Tier IV resulted in a delayed response to fulfill dealer requests. This resulted in the reduced standard of SOs in terms of etiquette and confidence, while the delayed response to dealers’ statement requests disrupted the flow of information, especially the Engro product dealer transfer price. Hence, market development and distribution net- work needed to be improved further. These responses were a result of the inadequate training and orientation of officers as compared to the previous structure and the break- down of communication with officers in the field.

It was also seen that during restructuring, there was little effort made to deal with the anxiety and disorientation of people losing their authority and power in the new structure. For instance, the future roles of the existing national sales manager, regional managers, or Tier III (non- AMM) officers were not properly defined. Mir realized that senior management should have recognized each individual’s contribution in the organization so far and highlighted the need for the change in structure. There was also a slight feeling of annoyance observed among the Tier III employees who did not make their mark to the AMM position at being equivalent in designation to Tier IV personnel, that is, a fresh-graduate Tier IV hire was an SO, a D&MO, or an MDO and a Tier III non-AMM employee of five years’ experience was also an SO, a D&MO, or an MDO.

An AMM shared his experience:

One person who was working with me as a fellow SO in the old structure started reporting to me in the new structure when I became an AMM and he did not. For the first month, I faced strong resistance from him. It became worse when I was invited to the marketing conference and he was not invited. In the past, both of us used to go together to the marketing conference.

Emphasis on Tier IV had a negative connotation attached to it as employees believed they belonged to the bottom-most rung of the ladder. This feeling had led to the Tier IV syndrome, which referred to the uncertainty and dissatisfaction among Tier IV officers regarding their jobs and promotions. Moreover, the company had hired a third party agency to aid in the hiring of Tier IV personnel, which resulted in several problems. Employees believed that they had been misinformed and cheated during the hiring process by the recruitment agency regarding the offered salaries. Most new Tier IV employees felt that the terms of employment should have been more explicitly stated by the third party recruiting agency. As one AMM stated:

Tier IV SOs are unable to deliver the kind of professionalism and quality of work that is required.

According to one manager:

Dealers don’t give importance to Tier IV SOs as they know that the main authority is AMM, whereas in the old structure the SO was the king of his area. Now your front-line people enjoy little autonomy/respect at dealers’ level.

One major reason of restructuring was to motivate Tier III employees through a supervisory role and job enrichment. An AMM was responsible for five functional areas: sales; market development; distribution & merchandising; health, safety, & environment; and Six Sigma projects for process improvements. Without adequate support staff and infrastructure, some AMMs were feeling over-stretched. According to an AMM:

All these five functions are required by the management to be managed from the one room office of an AMM through only his laptop, with no support staff. He even has to make his own tea.

AMMs felt that they needed adequate staff and infra- structure support in order to be effective. They also wanted to have better-quality Tier IV employees working on their teams.

One AMM suggested:

We need to improve the quality of Tier-IV employees either through training them or through attracting more talented personnel by increasing Tier-IV salaries and incentives.

Some AMMs thought that the management could have done more to prepare AMMs and SOs in advance for their new roles and expectations. An AMM shared his feelings:

It seemed to me as if I was thrown into the pool along with my SOs in my area without adequate preparation about our new roles and what to expect. We learnt as we moved along.

While a sense of urgency was created and overall communication within the marketing division had increased after the restructuring of the sales structure, efforts seemed to be lacking in bringing about synergy within all other divisions regarding the newly implemented changes. Other divisions included Manufacturing, Finance and Planning, Human Resource and Public Affairs, and Corporate Services. Although the restructuring idea was thoroughly discussed throughout the marketing division, Mir felt that other divisions were somewhat isolated from the discussion and they were simply informed through e-mail about the implemented changes.

As one manager noted, there was lack of sufficient IT support in the new structure. In the previous structure, all IT-related information in the Management Information and Dealer Accounting System (MIDAS) was at the authority of the zonal office and solely available to the ZMMs. Indirect link to MIDAS resulted in longer response time to customers’ queries and orders and required constant communication and reporting with the head office and zonal office. Hence, when the instructions and requests finally came through to the AMM, there was a delayed response to customers. Moreover, the SO had access to a personal desktop and e-mail ID in the previous structure, but after restructuring such facilities were lacking. This meant that hard copies of e-mails, reports, queries, and so on from an SO had to be entered in the laptop by the AMM concerned to be communicated to ZMMs or other relevant interfaces. Several AMMs felt this to be merely a clerical task that contributed to delays in communication. According to one AMM, “communications were usually late and incomplete.”

Khalid Mir was contemplating his next steps. How successful had the restructuring effort been? Should he continue with the new structure or was another round of restructuring imperative? How could Engro reap maxi- mum benefits out of this newly implemented structure? What lessons could be learnt regarding change management that might be helpful in future restructuring efforts? These questions still remained to be answered.

List of Acronyms Used

AMM       Area Marketing Manager

D&MO     Distribution & Merchandising Officer

DM          District Manager

DO           Distribution Officer

FMCG      Fast Moving Consumer Goods

GM           General Manager

HSE          Health, Safety,& Environment

HO            Head Office

MBA          Masters in Business Administration

MDO         Market Development Officer

NSM         National Sales Manager

RM           Regional Manager

S&MDO   Sales & Market Development Officer

SMDO     Senior Market Development Officer

SO          Sales Officer

SOP        Standard Operating Procedures

STO        Sales and Technical Officer

TSO        Technical Services Officer

ZMM       Zonal Marketing Manager

ZO          Zonal Office

Explanation / Answer

After reading the case, I observed the major problems relating to employee turnover, inventory control, low market development, and suboptimal merchandising efforts in its original marketing-division structure for the organization. I have analyzed the following crucial points:

1) Company has a well established workplace culture

2) It has a strong structure which was restructured in the year 2008.

3) It hires MBA graduates and more qualified people to its various division including sales and marketing.

4) It has well versed reporting system.

5) It is facing problem related management, communication and organizational structure.

My suggestions to Engro Chemical Pakistan Limited:

1) It should try to start a new structure and try to rectify the same with change of coverage and reporting system.

2) A genuine standard operating procedure must be initiated. It should be done in line with change in employee’s tasks and duties.

3) Newly hired employees as well as existing people should be given proper chance to career growth and advancement so that they can be retained with the organization.

4) Every confusion, chaos and indiscipline’s must be removed and controlled with proper rules.

5) People should be given a achievable target and associated incentives which will result in motivation and enhanced level of productivity.

6) Integrated efforts of marketing and coordination among various divisions should be implemented.

7) It should take initiatives to develop its market and retain the customers with special discounts and offering high end quality.

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