Case Study 5 – SOP or SAP

Introduction 

Mr. Ankush Patel, had his own garment machine manufacturing unit in Indore, since the year 2002 with a strength of 40 employees. His company’s turnover was about 30 crores in the year 2016.

He also had offices in various locations and over the years developed a vast network of garment manufacturers during that period. He was a commerce graduate and along with this, he had several other businesses and the turnover of his company was a massive 100 crores.

Mr. Ankush always believed in dreaming big and hoped to expand his line in the garment machine manufacturing industry. With a vision of turning his dream into reality he established entered into a joint venture with an Italian company. The Italian company was more involved in financing the venture and providing technological support than the day to day operations. In 2008, Mr.Ankush, along with the Italian company set up another garment machine manufacturing factory very near to his old unit. This new unit had the capacity of over 100 people and was more technologically advanced than the old unit. He hoped to have his factory running within 3 years. His target was to bring the company’s turnover to a colossal 500 crores, within the first five years of its operations. To achieve this ambitious target he turned to his nephew who was the CEO of his old unit. Mr. Rakesh, was his nephew who had 20 years of work experience in the same field.

However, he did not have the experience to handle such a huge business. Mr Ankush and Mr Rakesh, both were aware of this fact. In spite of that Mr. Rakesh was appointed as the CEO for the new unit as well.

For the next two years, they built the factory and installed Indian and Japanese machines to manufacture and assemble the garment machine manufacturing factory? Mr. Ankush called technical delegates from Japan for the installation of the machines and the running of the factory.

Simultaneously he decided to buy SAP for implementing the system from day one. At the same time, Mr. Rakesh started to appoint people at different levels in Gujarat and thus, he started building a team under him.

Mr. Ankush completed his task of installing the entire factory and was highly dependent on Mr.Rakesh to take over the factory and he suggested that he appoint skilled professionals for design, sales, purchase, manufacturing and SAP implementation. Mr. Rakesh first decided to focus on getting orders from the market. Simultaneously, he also started implanting SAP in the organization. Within a year Mr. Rakesh got a good amount of orders.

While executing these large orders he faced various challenges in the organization. The employees began to leave the organization, due to which major quality issues were faced on a daily basis. This led to a delay in orders and heavy losses. There came a point where Mr. Rakesh was alone and there was no middle management to delegate to. That is when Mr. Ankush stepped in and conducted a review with Mr. Rakesh. He realized that Mr. Rakesh fell behind in delegating work to people. He also recognized the fact that a system was not built properly due to inadequate middle management.

Mr. Ankush was spending almost Rs. 10 lac per month on infrastructure and overhead costs for new premises. He was under tremendous financial pressure to sustain his new unit due to poor execution which was affecting the old unit as well. He tried to appoint senior management with relevant experience above Mr. Rakesh, but it was to no avail.

Mr. Ankush was not from a technical background and so he was unable to identify the problems related to technical issues and process related issues. He came to terms with the fact that Mr. Rakesh cannot handle the entire organization with his approach and attitude.

Mr. Akush was insisting on implementing SAP so that at least he could identify the issues and close the same, with or without the of involvement of Mr. Rakesh. He was in a great dilemma about whether to focus on people or process, since the problems were piling up and the loss was multiplying in the organization. He decided to hire an external agency for identifying the GAP and take advice on whether to work on SAP sooner or later.

Finding Facts

At that point of time AUGMANTUM Management was introduced, to identify the GAP and provide permanent solutions.

We first took one round of interviews with all the management members and all the HOD’s & executives. We studied their current process, and after the technical audit was done we identified the following issues:-

 

  1. The promoter had a big vision and was an He was extremely committed and had made a very good investment for manufacturing machines
  2. The company had a good infrastructure for running the business However, there was no clear definition in the organizational structure.
  3. The roles and responsibilities were not made clear
  4. All the second level and third level employees were working with responsibilities but without accountability
  5. The organization was imbalanced in terms of strategy, process, people and process mapping
  6. Right decisions at the right time were not taken which led to delays in execution
  7. Some of the key positions were vacant.
  8. There was a shortage of knowledge transfer in the organization
  1. It was observed that the SAP people were not guided properly define process and policies to be mapped in the SAP
  2. Lot of duplicate work was going on due to poor process mapping, in spite of having SAP
  3. There were no laid down procedures and policies and due to that SAP was not used effectively
  4. There were no structured reports and structured reviews taken by the management
  5. A huge investment was made on SAP and therefore, they tried to implement SAP on everybody trusting that it would work
  6. Since there was a lack of competent people, the application of SAP was not “real time” and the effects of bad accounting was observed, which did not allow Mr. Ankush to take decisions based on the SAP reports
  7. There was lack of understanding of the ERP system by Rakesh so he could not assist the SAP team in mapping the processes
  8. Due to a high cost of conversion and high overheads Ankush was not able to take a decision about where to invest – infrastructure/ SAP or hiring middle management. He would sometimes put pressure on Mr. Rakesh to make policies and processes to execute the orders on time and improve culture of the organization, and sometimes pressurize Mr. Rakesh to implement SAP very quickly but on both fronts there was no progress.
  9. There was lot of re-shuffling done at the management level – example, three Vice Presidents had been above Mr. Rakesh. All equations failed, since Mr. Ankush had given responsibilities to all the Vice Presidents but the authority was kept with Rakesh, which created a lot of problems in execution
  10. Due to frequent reshuffling, the executive levels were not comfortable with working and were not sure whether they had to work under Mr. Rakesh or the Vice President – resulting in a higher attrition rate at the executive level.
  11. Ankush also would get involved very aggressively sometimes, and sometimes he would leave the issue to Mr. Rakesh, which created a problem in the mind set of the middle management
  12. There was a big challenge in leadership traits in Rakesh’s work, which needed to be addressed immediately
  13. Technically, Rakesh was also short of knowledge in some cases which was creating problems in guiding the employees
  14. Rakesh was making new procedures every day and revising them the next day due to a change in the processes
  15. There was a huge vacuum in the second level management and due to that there was a lot of pressure on Mr. Rakesh to take decisions and execute the work on time
  16. Rakesh could not establish a culture of team work in the organization, as he came from a small group of companies and did not have the exposure of handling large teams and middle management.
  17. Due to the non-technical background of Mr. Ankush he was not able to gauge the situation and prioritize the urgency and planning required at the shop floor level, where he is involved
  18. Due to the geographical location, knowledgeable and experienced people were very hard to The budget was also restrained due to high overheads

Changes to be Implemented

  1. The organization had to be restructured so that the right person could be at the right place and the right decision could be taken at the right time
  2. Roles and responsibilities had to be defined
  3. Along with responsibility, authority had to be given to certain employees
  4. Process mapping had to be implemented
  5. The approach of the management towards processes needed to be changed A standard operating and policy needed to be defined for smooth functioning of the organization
  6. The level of involvement of all the employees had to increase Delegation

Leadership Traits to be Developed

  1. Delegation
  2. Budgeting and planning at management and HOD level
  3. Activating the implementation plan stage wise.
  1. Conducting regular reviews
  2. Creating a positive mind set within the employees

 

We discussed all these points with Mr. Ankush and gave him the implementation plan for SOP-P and SAP. We told him that the commitment on his end would be required and he will have to be a part of the implementation and transformation process. We also felt that if he did not involve himself at the right time and right place for the right decision, then the entire project will fail. We also informed him that we might have to replace certain key people with certain professional people if the key people did not change themselves in this transformation process.

 

We clearly told Mr. Ankush that we would be first implementing the “SOP-P and gradually SAP”. Mr. Ankush agreed to all our points and asked us to go ahead with the implementation.

 

Solutions Recommended/Implemented

  1. Defined short term and long term goals
  2. Procedures and policies were clearly defined
  3. Roles and responsibilities, especially of the CEO were defined
  4. Training and hand holding was given to Ankush and Mr. Rakesh
  5. As per the road map, key people in the organization were recruited and gradually SOP-P and SAP were implemented simultaneously
  6. At some stages management counselling was done to overcome issues like the feeling of insecurity in the CEO and the short comings of impulsive delegation
  7. Regular brain storming sessions with all HOD’s was done
  8. Regular reviews with SAP consultants and Management Members were made
  9. Defined KRAs and suggested to MAP the same in SAP after 3 years, till systems and people get acquainted with each other
  10. A proper organizational structure was made for smoother functioning of the organization

Outcome

After one year of exercise, the management was quite clear about the road map and during the period of one year all key positions were closed. The turnover increased by 40% from the previous year. The company reached breakeven point in this financial year.

Mr. Ankush has made a plan of expansion for opening a new factory with a different set of machines. Mr. Ankush was happy with the management of Mr. Rakesh who is now handling the entire unit independently.

 

Conclusion

When the organization wants to go for growth / transformation from “SOP-P to SAP” they should be prepared internally/ mentally for change and transformation and the leader should be able to build the team with the right person at the right place and right decisions at the right time. The leader must be capable to set an example for their people, to guide them, always be positive about their team and guide them with a positive frame of mind, else the growth becomes stagnant and the organization cannot sustain itself for longer period.

A leader is one who knows the way, goes the way, and shows the way.

-John C. Maxwell



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