People or Production: Who Matters

It was a lovely rain washed morning in the month of July, 2015. Switching off their AC, Mr.
Rajesh Patil, CEO and Mr. Jairam Patil, MD of Paradise Fittings Pvt. Ltd had opened the
windows to enjoy the weather. Sitting in the meeting room of their three storey office in Mahim,
Mumbai, the mood was just the opposite of the weather outside. The two brothers had reports on
their organizations quarterly performance. The results showed increase in profits and share
values for the second consecutive quarter after years of losses. Yet the extremely encouraging
results were no reason to rejoice; both men knew.

Background
Paradise Fittings Pvt. Ltd. was set up by R.R. Patil in 1965 at the same spot where the office now
stands. Father of Rajesh and Jairam Patil, he started by distributing bathroom fittings using the
distributorship model from a one room office. As business grew, they went from distributorship
to manufacturers and established their own brand by the name of Paradise Fittings. Slowly,
properties in the neighbourhood were acquired and the facility was expanded to house a plush
office. By 1982, Paradise Fittings had not only become a reputed market player but their office
had also become a landmark in the area. Although both his sons Rajesh and Jairam joined the
business, Mr. Patil continued to hold complete power till his death in June 1991. Ever since, the
two brothers have held the posts of CEO and MD respectively.

Believing in the philosophy of Henry Ford, R.R. Patil proclaimed his people were his biggest
assets. The entire growth of the organization was attributed to its’ employees and the trend was
continued by his sons. Employees were treated well and compensation packages were quite good
across levels. Earlier on there used to be a VP-HR & Finance, VP-Operations and VP-Marketing
& After Sales. They were followed by Senior Managers & Managers. The middle level
management was formed by Associate Managers and Assistant Managers. In the lower
management there were senior foremen, foremen and junior supervisors. The manufacturing
workers and junior executives in various departments formed the lowest level in the
organization. Later on, in a bid to make the organization flatter, the post of VP was done away
with and the senior managers were re-designated as Head cum Manager of the particular
department while the managers remained “plain managers.” Overall operations and
manufacturing was under the control of Head Cum Operations Manager with Seven Managers
working under him.

The retention level was exceptionally high due to the progressive philosophy of the management.
Till 1994 all the VPs had retired after attaining the then superannuation age of 58 years. In
addition, with the exception on one who had quit, all senior managers had also retired after
serving full term in the organization. As of 2013, the average retention period was 12 years;
much above the industry standards. The average age of the workforce was 43 years. All this had
converted into profits and goodwill for the company. An advertisement for a Management
Trainee post in 2004 (the basic qualification for which was a fresh MBA with an engineering
background) had obtained 24000 applications from various parts of the country including from
applications that had close to a decade of work experience.

As the organization grew, so did its’ sales turnover and revenue and in turn the market share
increased. In the globalized economy of 1991, Paradise did exceptionally well. For 35 years
straight it remained a profitable venture and a tough competitor in the market. A very brief
period of turbulence was witnessed at the turn of the millennium but things passed on and
Paradise continued its’ dream run. People centric management and employee care won it the
“Best Company to Work” award at an elite national level competition at Asia level held in 2002.

However, the first losses that were reported in the first quarter of 2008 were the harbinger of
times to come. By the end of 2008, the entire year had been in a loss and when his trend
extended till first half of 2009, the Patil brothers engaged a consultancy to look into the causes
and seek solutions.

Competitive Market
After weeks of study, the reputed consultancy reported a low demand, increase in substitute
products and intensified competition by players who had diversified into bathroom fittings
business. The Rupees 30 billion market was showing a downward trend and all players seemed
concerned. The Patils had an idea as their own survey showed companies providing modular
kitchens also providing sanitary ware and bathroom fittings. Thus a complete package was
available for customers, most of them into real estate business. The market positions are shown
in Figure 1 below:

Figure 1: Market Shares of the players in Bathroom Fittings

Market Share in %
Paradise
11 9 27 Classic Fittings
15 Roadways Fittings
20 Moonshine Fittings
18
ABC Fittings
Others

The promoters were happy that Paradise had not met the fate of its’ one time competitor
Moonshine Fittings that had closed down because neither it had a motivated workforce (due to
an anti-employee thinking) nor it cared too much for the output. After only five years in
operations, Moonshine went bankrupt and had closed down in 2004. Other organizations like
ABC Fittings were just able to sustain although ABC lost a lot of goodwill due to poor employee
relations. At ABC fittings employees were supposed to meet targets religiously and the focus
was on quality output. This organization was also in losses but managed to avoid bankruptcy by
maintaining an optimum level of production. Classic Fittings Pvt. Ltd. that was second in terms
of market share (Paradise being the market leader with 27%) had decided to move out of fittings
business while Roadways Fittings with a market share of 18% and third in terms of position was
on the verge of being acquired by a new entrant in the market.

To sum it up, it was a turbulent situation in the bathroom fittings market with an uncertain future
for all players.

Current Position
It was then the management took a decision to diversify its’ portfolio and Paradise moved into
the FMCG sector and real estate business. While this strategy was able to offset the losses, the
continuing negative trend in parent business was troublesome till the first quarter of 2014. In the
meanwhile, Paradise Fittings continued with its’ favourable employee practices and the pre-2008
scenario was still prevalent, at least with respect to the human resource of the organization.

In April 2014, the Patils heard of Mr. S.K. Karmakar, a veteran of manufacturing industry who
had served in both public and private sector undertakings. At 53, Karmakar had a record of
turning around at least seven organizations to his credit including a reputed loss making unit in
the northern Indian state of Uttar Pradesh. Eager to have him on-board, negotiations with
Karmakar started. He was offered a handsome package including long term incentives and
perquisites enjoyed only by Patils along with the assurance of non-intervention into his
management style by them. Karmakar started his job with great enthusiasm and energy. He lived
up to his reputation and the first quarter of 2015 showed a slim profit margin and an increase in
production, after a long gap of seven years. The production, revenues and profits are shown in
Figure 2 below:

Figure 2: Revenue, Profits & Production Figures from 2007-Second Quarter of 2015
120

100

80
Revenue (in Million
Rupees)
60
Profits (in Million Rupees)
40
Production Units (in
20 Millions)

-20

Unprecedented Issues
However, this turnaround had come at a cost. The management noticed the first signs of
dissatisfaction among workers and employees at other levels. Karmakar was very particular
about targets, setting them hourly, daily, weekly, fortnightly and monthly. All these were
supposed to be met by workers. They were also told to extend their working hours by 30 minutes
and cut down their breaks. Officially, the lunch time was reduced from one hour to 45 minutes.
Karmakar also introduced the system of rostering within teams. To avoid gossip and enhance
production, workers in every team were changed the third day. Penalty was implemented on
coming late even by a minute and workers would be reprimanded publically on not meeting
targets. Besides each employee was assigned duties that were not a part of his job as well.

All these policies were new to the workers who started getting frustrated with the system. While
production increased, so did absenteeism, late coming and number of leaves citing medical
reasons. Barely a month after Karmakar joined, Datta Ram Kulkarni, a foreman who had been
with the company since 1975, resigned. Kulkarni, known as Bhau, a term indicating elder
brother, was deeply respected by workers. The Patils even interviewed him at the time of his
departure and were surprised to find him frustrated with Karmakar and the latter being the reason
for resignation just a year away from retirement. Kulkarni was soon followed out by J. Rao, the
person next in seniority in terms of service with the organization.

In the next six months, around 10% of the existing workforce had quit. While some of these were
relatively new to the organization, there were others who had been with Paradise Fittings for
close to 25 years. In their exit interview, they described the “policeman style” of the new
manager as the reason. For once, the workers even contemplated strike but were stopped by older
employees. The workers then decided to meet the Patils but found themselves unheard due to “an
assurance of non-intervention” to Karmakar by them. This frustrated them even more and the
environment became very stifling. The people orientation was fast vanishing giving way to the
only concern of work that was to be obtained at any cost

Both Rajesh Patil and Jairam Patil were fully aware of the situation and became alarmed but the
profits in the first quarter had deferred their concern. As more people quit, the situation was quite
baffling for them. Upon receiving the results of second quarter of 2015 that were again
favourable in terms of profit, the Patils decided to discuss the issue at length even that would be
with Karmakar himself. The Patils did not know what to do at this stage. Were they to sustain
Karmakar and keep the growth momentum or were they to care for the workers who had been
their greatest asset and deal with the situation with an iron hand that meant taking the
command away from Karmakar? They felt the need for a proper HR policy and strategy that
could be a right balance with production.

While they sat discussing, they were disturbed by the unannounced entry of Mr. Suresh Kumar.
Mr. Kumar was now the senior most foreman in Paradise and enjoyed the confidence of the
workers. The strike had been called off primarily at his behest and was deeply valued by Patils.
Kumar had come to tender his resignation just three years before his retirement.