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MGT 211 Term Paper Prepared for:

Section -X Md Khaleq Newaz

Analysis of HR Practices
@ Karnaphuli Fertilizer Company Limited

Prepared By Group:
Rashed Sarwar 07110030
ADD UR NAMES

Date of Submission: 27th November 2008

November 27, 2008

MD. Khaleq Newaz


Lecturer
BRAC Business School
BRAC University
AH 501, 66 Mohakhali C/A
Dhaka 1212
Bangladesh

Dear Sir:

This report titled “Analysis of HR Practice @ Karnaphuli Fertilizer Company Limited” has been

prepared as a course requirement of Principles of Management.

Working on this report, we have focused on Human Resource practices. We tried to show a

comparison between the theory that we learn in books and what is actually happening in real life.

We hope that our work will come up to the level of your expectation. Any further query regarding

the report is welcome.

Sincerely yours,

Rashed Sarwar (07110030)


Cell: 01670852751
Email:sarwar_r87@hotmail.com
On behalf of Group-xx

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ACKNOWLEDGEMENT
Firstly, we would like to thank our course teacher for giving is this

assignment. There is a lot of things that we learned while conducting

research for this topic.

We would also want to thank those who have helped us to prepare this

report. Without them it would not have been possible for us to make it.

Our heartfelt thanks to our source at KAFCO, without whose help we

would not have been able to collect information about KAFCO. We are

extremely grateful to him for giving his precious time to us. And upon his

request we have omitted his name from our report.

Last but not the least; we will always be grateful to Farah Siddiqui and

Ruhina Rahman, students at IBA, for giving us valuable information on

Grameen Phone which were vital for our analysis of the report.

CONTENT

CHAPTER TITLE PAGE

3
EXECUTIVE SUMMARY 5
1 Introduction 6
About KAFCO 6
Company Structure 6
Company History 6
Products 7
Company Mission 7
2 Case & Problem 8
Case in Brief 8
Case Objective 9
Methodology 9
Limitations 9
3 Case Sequence 10
Detailed Company Structure 10
HRM Practices 10
Recruitment & Selection 10
Orientation 11
Training 11
Compensation 12
Performance Appraisal 12
4 Analysis 13
5 Conclusion 16
The takeaways 16
Reference 16
6 Appendix 17

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EXECUTIVE SUMMARY
For our term paper, the topic that we chose was motivation. We

wanted to analyze the Human Resource tools used in the companies

of Bangladesh. In this regard, we decided to go for Karnaphuli

Fertilizer Company Limited (KAFCO), a transnational insurance

company, to research on this topic.

From our analysis, we discovered that KAFCO has a sound HR

practice. They have very well defined compensation scheme and

other HR practices for its employees and when these were compared

with one of the leading companies of the country, Grameen Phone,

KAFCO is very much in its game.

Lastly, the results were compared against the motivational theories

taught in class and with HR practice of Grameen Phone. Although

Grameen phone and KAFCO is not direct competitor, but they share

similar type of mission: to be the best in their own field.

Chapter

5
1 Introduction
The Organization
Karnaphuli Fertilizer Company Limited
About KAFCO

Karnaphuli Fertilizer Company Limited (KAFCO) is a 100% export oriented international


joint venture company.

Established in Bangladesh with the shareholding and support of the governments and
private sectors of Bangladesh, Japan, Denmark and the Netherlands, KAFCO is the
largest joint venture investment in Bangladesh. KAFCO markets its products to many
countries around the world.

The KAFCO plant is a fully integrated complex. It lies on 55 acres of land, located in
Rangadia, Anowara, Chittagong just alongside the Karnaphuli river. The company
employs a total of over 600 people at its plant site and corporate office in Dhaka. Most of
those employed at plant site live in the company's housing colony built 3km down from
the plant on 16 acres of developed land. The housing colony incorporates a school,
medical clinic and recreational facilities for the benefit of the company's employees.

The KAFCO complex produces high-grade granular Urea and anhydrous Ammonia. The
facility consists of an ammonia plant, urea plant, and a urea granulation unit, all
supported by captive power generation.

KAFCO's corporate office is in Bangladesh's capital city, Dhaka.


Company Structure

KAFCO ownership structure is 43% Bangladesh Government, 30% Japanese


Companies & the remaining by European companies.

Board of Directors consists of 9 directors; three of whom are appointed by Bangladesh


Government, three under Japanese and the remaining 3 from European companies.
Industry Secretary of Bangladesh Government is the Chairman of the Board.

Company History

The idea of KAFCO was developed in late 1970s when the International Finance
Corporation (IFC) began considering the possibility of promoting an export-oriented
nitrogenous fertiliser complex in Bangladesh. At the core of the idea was the intention to
derive the highest benefit from the country's abundant natural gas. The concept was
discussed with the major international ammonia technology licensor and catalyst supplier
Haldor Topsoe A/S (HTAS) and with Swedyards Development Corporation (SDC).

In July 1981, the Company was incorporated in Bangladesh. In December of the same
year, a promoters' agreement was signed in Washington DC between the Government of

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Bangladesh, SDC, and HTAS. IFC pledged to provide a major portion of the financial
support. As the project was developed further, the idea of a barge-mounted plant was
abandoned and SDC's interests were taken over by HTAS. The project struggled to find
finance until Japan showed interest in participating in the venture. The project then
gained momentum and various agencies soon came forward to become core investors.
These included Bangladesh Chemical Industries Corporation (BCIC) on behalf of the
government of Bangladesh; the Overseas Economic Cooperation Fund, Marubeni
Corporation, and Chiyoda Corporation of Japan; Haldor Topsoe A/S and Industrialisation
Fund for Developing Countries (IFU) of Denmark; Stamicarbon bv of Holland, and
Commonwealth Development Corporation (CDC). The core investor group later became
shareholders in KAFCO and participated in the promotion, financing, design, engineering,
supply, construction, marketing of products, and in rendering of technical and operational
services.

Products

Plants: Ammonia

The ammonia plant uses Haldor Topsoe A/S technology, it is a state of the art, low
energy ammonia plant, incorporating the necessary modifications for integration with a
urea plant. The Topsoe primary reformer is based on the side-fired furnace concept and
ensures optimum utilization of high alloy tube materials and extended catalyst life due to
very accurate temperature control.

Plants: Urea

The Urea and Granulation plant is based on Stamicarbon's well known carbon dioxide
stripping process. Due to the 42-metre height limit imposed on the location, the synthesis
section of the urea plant incorporates the first commercial application of the Stamicarbon
H.P. Carbamate Condenser(Pool Condenser)

Company Mission

• Company mission is to become a global leader in fertilizer manufacturing.


• 2nd mission is to set an example of outstanding public-private partnership.

2 Case & Problem


Chapter

7
HRM Practices
The Report
Case in Brief

In this case, we tried to look into the HRM procedure of the company. Before we go into
the findings of our research, let us first look at the theoretical aspects of HRM.
Human Resource management
This is a management process consisting of eight activities necessary for staffing an
organization and maintaining high employee performance. The human resource
managers of an organization interview job candidates, orient new employees and
evaluate their performance.
Recruitment & selection
This process deals with selecting the appropriate applicant for a job. Recruitment refers to
the process of locating, identifying and attracting capable applicants. On the other hand,
selection consists of the process of screening job applicants to ensure that the most
appropriate candidates are hired. HR Managers use various kinds of selection tools to
select the best applicants from a pool of applicants. Methodology varies from the
applicant forms to written tests, performance assessments, to interviews, background
investigation to physical examination.
Orientation
This is another HRM process which is concerned with the introduction of new employee
to his or her job and the organization. It has been classified widely into two sub headings:
work-unit orientation and organization orientation. Work-unit orientation familiarizes the
employees with the goal of the work unit, classifies how his or her job contributes to the
units goals and includes an introduction to his or her new co-workers. Organization
orientation informs the new employee about the organization’s objectives, history,
philosophy, procedures and rules.
Training
Changes take place in organization over time, as globalization takes place and as
policies change, or legislation is passed. One of the most important processes of HR is
that employee skills have to be aligned with the changes that take place in organizations.
However it is management’s responsibility to decide which employees require training,
when they need it and what form of training.
Compensation
Developing an effective and appropriate compensation system is an important part of the
HRM process as it can help attract and retain competent and talented individuals who
help the organization accomplish its mission and goals. In addition, an organization
compensation system has been shown to have an impact on its strategic performance.
Organizational compensation can include many different types of reward and benefits
such as basic wages and salaries, incentive payments, housing, medical allowance, etc.

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Performance Appraisal
Performance appraisal, also known as employee appraisal, is a method by which the job
performance of an employee is evaluated (generally in terms of quality, quantity, cost).
Performance appraisal is a part of career development. The most popular methods that
are being used as performance appraisal process are: Management by objectives; 360
degree appraisal; Behavioral Observation Scale; Behaviorally Anchored Rating Scale
Case Objective

In this report we tried to look at the HRM practices of KAFCO and tried to relate its
practices to the theory and at the same time compare it with other companies in
Bangladesh.
As HRM is a very broad topic, we are only looking into the following aspects:
1. Training
2. Recruitment & selection
3. Orientation
4. Compensation
5. Performance Appraisal
We also wanted to highlight the contrast of KAFCO’s practices to other leading
companies in the country.
Methodology

This is mainly a qualitative report. For primary data we have conducted two interviews
with the respective company’s representatives. For secondary data we have used
books, the company’s website and pamphlets.
Also we had to gather some information in order to compare KAFCO’s HR practices with
Grameen Phone. This we collected from published reports.
Limitations

An extensive interview with each level of the management could have enriched the
information and analysis of this report, but due to time constraint this could not be done.
So we think this is a major limitation for this report.
KAFCO does not have its history on its website. So we could not write about recent
happenings of the firms, but only up to the backdated information present in Banglapedia.

3 Case Sequence
Chapter

9
HRM Process
@ KAFCO
Detailed Company Structure

KAFCO has a total of 650 employees directly working under the company. On top of
that, KAFCO has another 300 outsourced employees for the company in fields such
as security, cleaning, gardening, etc
Of the 650 employees under its umbrella, 300 are management employees whereas
the remaining 350 are non-management workers in the technical sectors.
There are three full-time permanent expatriates: one CEO who is the head of the
company; and two Deputy CEO; of which one is the chief technology officer while the
other is the chief financial officer.
Other than these three, KAFCO hosts about 50 contract employee expatriates year
round. Most of them work for 1 to 4 weeks.
Local workers are hired through competitive procedure and job advertisement is
through print media and adverts in bdjobs.com.
HRM Practices

KAFCO consist of a well established and well regulated HR manual which contains
all sections from recruitment, selection, salary survey, staff development, disciplinary
procedure, etc. These are all pro-employee philosophy.
Union relations are dealt with by Deputy General Manager for Employee Relations.
GM is also in charge of staff development. HR is headed by GM and HR Manager.
Employee relations are exceptionally high. Annually less than 3% turnover rate is
something that they are proud of. However this smooth run is only true for the last 5
years. Previously, employee relation were rather volatile.
Consistent with Bangladesh Labor Act (BLA), 5% profit is shared among all
employees. As a result, non-management employees are highly paid, sometimes
more than three times the annual income of any other MNC.
Recruitment & Selection

Like stated above, local workers are hired through competitive procedure and job
advertisement is through print media and adverts in bdjobs.com.
Let us now look at the selection procedure of KAFCO.
Selection Methodology
It is mainly a three step process.
Step 1: Interested candidates are requested to drop in a CV. This pool of CV is then
short listed according to selection criteria which are highly confidential. These short
listed candidates are then called to the next stage

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Step 2: Second round is a written test where the general competence and technical
skill are put to test. Applicants are required to pass in all sections and also have a
competitive score to get the green light.
Step 3: this is the interview round and the final testing methodology. Selection criteria
and the type of questions asked in the viva are also confidential information.

NOTE: in case of senior management, direct section through two to three


rounds of interviews or meetings. They are not required appear for any written
test and usually all applicants who drops in CV are called.
Orientation

After the section procedure, the formal orientation lasts for one week. It is conducted
by the staff development unit. The things that are covered in the orientation are:
company policy, procedures, rules & regulations. Apart from these, new members
also go through company cultural orientation & orientation with all the departments.
After this formal orientation, candidates than go through another four week long
department specific orientation. After that the person starts his/her job.
Probation period
New jobs are almost always comes with a probation period. For management staff, it
is 3 months from the date of joining while for non-management staff, it is as per labor
law.
Training

The company spends over 600,000 USD on training programs annually. Of which
500,000 USD is used to overseas training while only 100,000 USD for in-country and
in-house training. Annually 100 employees receive overseas training. However, every
employee will receive atleast 1 in-house/in-country training each year.
Both management competences and technical skills receive equally importance in
the training programs.
Methodology
Training and career development modules are well developed. Core management
competences for non-management, junior management, middle management and
senior management receive great attention.
Training needs assessment is conducted every 4 years and career development
review is also conducted every four years. Training selection is based on analysis of
these two reports.
In-house training are mainly conducted through video. Computer based training is a
skill not popular in the company
Compensation

Compensation structure is broken down into two major group. One for management
employees, other for non-management employees.

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For management Employee: 8 Grades. M1 to M3 for senior management; m4 & M5
for middle management and M6 to M8 for junior managers.
For Non-Management Employees: 3 Grades.
Compensation is based on market survey within leading MNC in Bangladesh. In
addition, all employees get 5% profit that the firm makes annually.
Salary Structure
Local employee salary structure is based on market survey with other leading MNC,
while the expatriate salary is based on global market rates.
Salary and benefits are strictly confidential. Even within the company.
Short term expatriates are hired through plant general contractor while the full timers
are hired through advertisements in international magazine.
Salary Survey is conducted each year. In addition, inflation adjustment is done every
year in August. Also the employees get increments for completion of each year of
service.
Additional Benefits
Company also thinks about the well fare of the company. It provides provident fund
and severance pay to its employee.
Company also has its own housing colony, own medical center where its employee
and their family gets huge discounts, school & collage, mosque and other
recreational facilities.
Performance Appraisal

Performance Appraisal is done each year. At the beginning of rating cycle,


employees need to identify performance need to identify performance objective for
next rating cycle. They then have to get their performance objective approved by their
supervisor. During mid cycle, an informal review takes place between the employee
and supervisor. At the end of the rating cycle, the employee makes a self assessment
and the supervisor agrees or changes the rating. Any potential need for training is
also identified at this stage. The rating is on a scale of 5. The final rating is then
shared with the management level employees. For non-management employees,
documents are kept confidential, however major outcomes are shared with the non-
management employees.

4 Analysis
Chapter

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Analysis & Discussion
HRM @ KAFCO
KAFCO compared

KAFCO is an international company and the policies they follow throughout the HRM
practices are well established and regulated. KAFCO falls under “mechanistic
Organization” as they have one manager for every non-management employees to
monitor their work activities tightly. The Control of Span is a pyramid shape for KAFCO.
CEO gathers the company’s information through Chief Financial and Technology officer.
Under them works sub-headed management employees with the aim to maximize
quality. The narrow span of control is very effective for manufacturing organization as it
minimizes the impact of inefficiency as their personal opinions are not values by
managements. Still for a manufacturing organization to attain the utmost profit
maximizing target, close supervision by subordinates is required.
HR management is a vital element for high employee performance as it ensures that the
firm has quality people to perform and reach it goals.
KAFCO has very solid HR Practices which are very employee friendly and we believe is
a very ethical thing to do. For instance the company has a policy under which it shares
company profit with its employees. This motivates its employees to work harder because
the more profit the company earns, the more share the employees will get. This is an
example of Realistic Job Review.
Grameen Phone has a similar practice, where they offer company shares to its
employees. This is also equally effective.
Recruitment & Selection
According to our book, it’s a process of locating, identifying and attracting capable
applicants. Job vacancy can be announced over internet, media papers, etc. Selection
can be done through interviews, written tests, assessments, etc. Selection is done on the
basis of validity and reliability.
KAFCO hires its local workers through competitive procedure and job announcement is
done through advertisement. However, KAFCO does not carry out any form of
assessment of performance simulation.
In contrast, when we compare with Grameen Phone, they follow a similar type of
selection procedure. A difference though is that they put their applicants through intensive
2 day long assessment program where the applicants are monitoring with regard to
various perspectives.
We feel that due to the lack of this assessment program, KAFCO might not always get
the best recruit.
Orientation
According to our book, introduction is provided after selection in two ways –
• work unit orientation and organizational unit orientation. Work unit orientation
familiarizes the employee with the goals of the work unit, clarifies how his or her

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job contributes to the unit’s goals and include an introduction to his or her new co-
workers.
• Organizational orientation informs the new employees about the objectives,
history, philosophy, procedures and values.
In case of KAFCO, they cover all the aspects spending two whole weeks on employee
orientation.
When compared to Grameen Phone, we find that they have a Grameen Phone has a
rather brief orientation, covering plant visitation, introduction to co-workers and company
benefits and code of conduct.
We feel that orientation in KAFCO is a better option, as it is good to have long orientation
to make the employees feel at home and it brings more efficiency when an employee
begins to work as they are familiar with the behavioral pattern of the organization.
Training
There are many forms of training: Job Rotation, Understudy assignment / Mentoring
and coaching, Classroom lecture, Films and videos, Experiential / Simulation exercise
(case analyses, group interaction), Workbooks/manuals, Vestibule training, Technology
Based Training Method, CD-ROM/DVD/Videotapes/Audiotapes,
Videoconferencing/teleconferencing/Satellite TV, E-Learning.
At KAFCO, core management competences for non-management, junior management,
middle management and senior management receive great attention. In-house training is
mainly conducted through audio visuals.
In contrast at GP, training is conducted in two steps. First a classroom training, then direct
hands-on attachment.
We believe that just video training is not the most effective form of training and that some
form of attachment would be required, especially in the technical field. Nothing is better
than learning a job while performing it at the same time.
Compensation
Managers must develop a compensation system that reflects the changing nature of work
and the work place in order to keep people motivated. These can include many different
types of rewards and benefits such as base wages and salaries, add-ons, bonus and
many other forms.
Compensation structure in KAFCO is broken down into two major segments; Basic
Salary and Addition benefits. They more or less cover most of the companion tools and
have a comprehensive additional benefits ranging from own medical center, school &
collage, mosque and other recreational facilities. And to add to then they use incentive
Payment and fringe benefits as a motivation tool.
From there frame work we can also say that they recognize Maslow’s Hierarchy while
meeting physiological, security, belongingness and value needs of its employee.
Then compared with GP, KAFCO’s additional benefits are very well developed, which is
mainly possible because of the small size compared to GP (GP has over 5000
employees). However the basic salary structure could not be compared as both firms’
salary structures are confidential.

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Also the employees at KAFCO receive salary increments for every year of service and
5% of the profit. These make KAFCO’s compensation structure far superior to that of
GP’s.
Performance Appraisal
Performance appraisal can be conducted through written essays, critical incidents,
graphical rating scales, behaviorally anchored Rating Scales (BARS), 360 degree
feedback, etc. And then good deeds are rewarded while bad deeds are corrected by
different means.
At KAFCO, Performance Appraisal is done each year on the scale of 5. At the beginning
of rating cycle, employees need to identify performance need to identify performance
objective for next rating cycle. During mid cycle, an informal review takes place between
the employee and supervisor. At the end of the rating cycle, final rating is then shared
with the management level employees.
At customer division of GP, performance appraisal is done on alternate days by the
supervisor without the employees knowing. Results are then uploaded on the company
intranet. Also, from time to time, certain competitions are carried out, such as who can
sell the most number of FnF. Best employee of the month is selected on the basis of
such competitions which is regarded with great value within the company.
We believe that KAFCO structure is solid but they could also urge its employees to
directly compete with each other, the way GP does. This will increase the employees’
performance greatly.

5 Conclusion
Chapter

15
Summing Up
Karnaphuli Fertilizer Company Limited
The Takeaways

We believe further research can be done in this field and other business areas regarding
this topic. With the results we achieved we have a more of HR practices to do more
research on. The HR tools are successfully implemented and this is seen by the
performance of KAFCO, which is the largest joint venture in Bangladesh, and is 100%
export oriented.
In Bangladesh, we believe if all companies opt for such HR tools as KAFCO, hopefully
we will see our Bangladeshi companies perform much better as the employees will be
more motivated and energized to do their jobs.
However, that being said, we feel that the training methodology of KAFCO needs to
evolve in order to keep up with the ever changing world.

Reference

The following web pages were used as secondary source of information to collect data:
1. www.kafcobd.com/
2. http://banglapedia.search.com.bd/HT/K_0014.htm
3. http://www.boi.gov.bd/kafco.php

The following book was used as secondary source of information to collect data:
Robbins, P.S and Coulter, M j (2005) Management, 8th edition, New Delhi, Prentice Hall.

6 Appendix
Chapter

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