Business and ManagementResearch Project Higher Level

“Should Shanta Garments Ltd change its motivational strategies to increase labour productivity?”

Word Counts:Executive Summary: 198Written Report: 1996Research Proposal+ Action Plan: 314

Acknowledgements

I would like to thank the following people:My business and management teachers, Mr. Robson and Mr. Rao for their invaluable guidelines The board of directors of the factory especially Mr. Khondoker Jamil Uddin for providing and trusting me with the company figures and taking time off from his busy schedule to answer my interview questions, without which my research would have been invalid. Ruma from the management department for gathering the data of the factory The workers of the factory for taking their time off to fill the surveys

Table of Contents

1. Research Proposal & Action plan2. Executive Summary3. Introduction3.1. About the Company3.2. Figure 1: Falling labour productivity3.3. Current Motivation strategies: Lack of non-financial incentives 3.4. Investigation Aim4. Results and Findings5. Analysis and Discussion5.1. S.W.O.T Analysis5.2. Motivational Theories5.3. Profitability Analysis5.4. Organizational Structure Analysis6. Conclusion7. Recommendations7.1. Non-financial Motivational Strategies7.2. Financial Motivational Strategies7.3. Matrix Structures7.4. Other incentives8. Limitations9. Bibliography

10. Appendix

1. Research Proposal and Action plan

Shanta Garments Ltd is an export oriented ready-made garment manufacturing company in Bangladesh that has recently been facing a decline in labour productivity. As a labour-intensive factory, labour productivity and effective motivational strategies have a significant impact on company’s production and profits.

The research examines how the factory could use a combination of financial and non-financial motivational strategies to increase labour productivity. Motivational theories used include Taylor’s scientific management, Mc Gregor’s theory ‘X’, Maslow’s hierarchy of needs, Mayo’s Hawthorne effect and Herzberg’s motivators. SWOT and profitability analyses provide insight on the company’s capability to employ motivational strategies and to investigate external influences that may affect motivation. Furthermore, the company’s organizational structure is analysed to assess its affect on motivation.

The methodology includes primary research through interviews with the board of directors of the factory to obtain information on its current motivational strategies and statistical data on factory performance andsecond, surveying workers regarding their opinions of the company and incentives provided. Secondary research includes background information on the company and the garment sector. The method provides both qualitative and quantitative data analyses to assess the limitations of the company’s strategies and its financial capability in order to devise new motivational strategies.1

The limitations of the research include the reliability of the data provided by the factory, as directors and survey participants may be involved in window dressing and external factors influencing factory performance such as inflation causing lack of motivation.

Action Plan2. Executive Summary

The introduction provides background information of Shanta Garments Ltd and illustrates the problem of falling labour productivity. It lists the current motivational strategies used and the aim of the investigation to change them to increase labour productivity.

The findings section discusses the company’s performance in providing incentives to workers and its financial capability to develop convenient motivational strategies to implement accordingly.

The findings of the company’s current performance and motivational strategies are analysed in the analysis section using tools such as SWOT analysis, motivational theories, profitability analysis and organizational structure. The provision of financial motivation and the company’s centralized structure is analysed to identify reasons for lack of motivation such as inadequacy and loss of control as owners have shifted priorities towards real estate business.

Subsequently, the conclusion section summarizes the research and deduces whether Shanta Garments Ltd should change their motivational strategies.

Finally, the recommendation section uses the analysis of the company’s current motivational strategies, financial ability and organizational structure to derive possible motivational strategies and solutions the company could implement to increase labour productivity such as provision of cheaper non-financial motivation to fulfil Maslow’s Love and Belonging and esteem needs and adopting matrix structure to increase interaction.

Word Count: 198

3. Introduction

3.1 About the company:

Shanta Garments is part of Shanta Group, which is a forerunner in Readymade Garment industry in Bangladesh since 1988. It has a global client base and serves international brands such as Tommy Hilfiger and Ralph Lauren2.

Current Problem:

3.2 Figure 1: Falling Labour Productivity

Figure 1 shows Shanta Garments experiencing falling labour productivity3 over the five years (2004 -2008). The drastic fall of 7% in year 2008 from 2004 reflects the persistent low motivation of workers.

3.3 Current Motivational strategies: Lack of non-financial incentives

Financial Motivation:

The factory primarily uses the following financial motivational strategies4:

Performance Related Pay (PRP): Performance bonus: when workers exceed the set target, all workers receive 100% performance bonus in cash Loyalty Bonus: Tk 10,000 paid to workers completing 10 working years in Shanta Garments Attendance bonus- fullattendance receives 10% of salary

Provident fund: if someone puts in 100tk per month, company puts another 100tk Per festival bonus: During the annual Eid, government regulations demands full basic salary to be given to workers (60% of salary) whilst Shanta Garments gives 100% bonus. Fringe Benefits:

Free Treatment for workers after 10 working years in Shanta Garments, which includes injuries during work and external health problems. Free lunch

Non-financial:

Annual Picnic

3.4 Investigation Aim:

Interviews with the board of director suggests that the company’s motivational strategies are failing with increasing worker complaints5 especially due to falling disposable incomes aggravated by rising inflation level6. With falling sales revenue and increases in cost of production7, an increase in wages would aggravate the situation. Hence, effective motivational strategies instead, should increase productivity by satisfying the needs of the workers.

Thus, my investigation is on ‘Should Shanta Garments Ltd change its motivational strategies to increase labour productivity?’

4. Results and Findings

Current Position of Shanta Garments

4.1 Figure 2: Falling Sales revenue from 2004 to 2008 = Budget Constraints

A fall in sales revenue8 is constraining the budget to spend on incentives causing the company to be less responsive to workers’ demand for higher payor better fringe benefits. It also restricts the company from providing sufficient incentives or implementing effective motivational strategies.

4.2 Figure 3: Falling cost of incentives= fall in provision of incentives

Figure 3 illustrates that expenditure on incentives is decreasing9 over the 5 years with only 0.69% in year 2008. The company decreasing motivators, to cut back on its fixed and indirect costs, have adversely affected feelings of recognition and appreciation of workers, leading to lack of motivation and lower productivity. 5. Analysis and Discussion

5.1 Swot Analysis

The factory has sound knowledge of the RMG sector, therefore has the ability to make effective decisions on implementing motivational strategies. The shift of investment towards the real estate industry is causing the budget constraints with less money retained to spend on incentives for garment workers causing dissatisfaction amongst workers.

To increase productivity, profits generated from Real Estate firm could fund towards recovery of garment factory through expenditure on labour research and motivational strategies. The comparative advantage and easy access to resources enables the firm to gain potential economies of scale.

Inflation rates have left garment workers with less disposable income causing labour strikes and damaging the reputation of the factory to foreign buyers. The inelastic demand10 for garment workers may increase cost of production if firms are obliged to increase wages. 5.2 Motivational theories

Currently, the company believes that ‘money’ and financial rewards are the key incentives to workers11, as the owner believes that workers do not need the “exclusives” which is required in the more developed nations.

5.2.1. Current Financial Motivation12 Analysis: Failing

The advantages of the PRP are it provides an incentive for workers to strive to exceed targets. Hard work is rewarded which is ‘fair’ and satisfies Adam’s Equity theory.

However, targets maybe unachievable, which will create resentment and hinder job performance. Loyalty bonuses and fringe benefits of free treatment for workers are given once workers complete 10 years, which is a very lengthy period and may cause workers to give up. Moreover, the stress caused by the pressure to meet targets can hamper motivation.

Taylor’s Scientific Management:

Shanta Garments follows the principles of ‘Scientific Management’ proposed by Frederick W Taylor. The company implements Taylor’s ‘differentiated piecework’ and sets output and efficiency targets related to pay to increase productivity. However, the division of labour makes job repetitive and leads to boredom causing lack of motivation and lower productivity.

Theory ‘X’ Approach

The theory ‘X’ approach proposes the idea that workers are lazy and need financial motivation or the ‘strict approach’ to be productive. This correlates with the owner’s autocratic leadership style13 approach. The board of directors carry out the decision-making only14 due to lack of education of workers15. However, this may have caused workers to feel ‘unappreciated’ resulting lack of motivation and low productivity.

Survey Results: Wages higher than Minimum WageThe survey indicates 22/30 workers receive wages of 47% or more than the national minimum wage16. However, 23/30 workers answered “no” to whether satisfied with salary received17 and the other seven workers who answered “yes” claimed, “It does not fulfil needs”. This indicates failure of financial motivation due to inadequacy.

5.2.2. Non-financial motivation strategies

Maslow’s Hierarchy of Needs and Herzberg’s Hygiene Factor

Shanta Garment provides workers necessities and a good working environment (28 workers rated 4/5 for working environment)18. This means they are fulfilling the bottom 2 levels of Maslow’s Hierarchy of needs: physiological19 and safety needs20, as well as Herzberg’s hygiene factor21. However, although workers are committed to their owner, the owners are not giving their full attention and have shifted priorities. Hence, there is a lack of ‘love and belonging’ and ‘esteem needs’ i.e. top levels of Maslow’s Hierarchy.

Figure 4:

The annual picnics22 and a good working environment attempts to provide non-financial motivation to fulfil Maslow’s “safety needs”. However, there is lack of delegation, communication, teamwork and appreciation causing dissatisfaction adversely affecting ‘esteem needs’. Moreover, workers are not sufficiently skilled23 to achieve ‘the self-actualization’ level.

The limitations of Maslow’s theory are the levels of needs are difficult to measure and in a developing country, workers lacking education and with low living standards are not motivated to achieve top levels. Mayo’s Hawthorne Effect:

Elton Mayo believed human relations at work are key motivators. Shanta Garments produces in batches and organizes only annual picnics for colleagues to interact24. Hence, there is lack of teamwork and interaction, which is causing dissatisfaction of job. The theory proposes that workers perform better, when management take an interest in the welfare of workers. Owners giving less attention and only providing good working condition are causing discontentment.

5.3 Profitability analysis: Decreasing Net profit

Shanta Garments faces a fall in net profit leading to a loss in 2007 (68% decrease from year 2006)25. The profitability ratio (net profit margin) in 2008 is 0.8%. There is little profit to distribute to the shareholders to invest in the business26. Therefore, less money retained for incentives and motivational strategies is leading to lower motivation of workers and hence lower productivity.

5.4 Organizational Structure Analysis:

5.4.1 Figure 5: Centralized Structure Analysis:

With a short chain of command and a wide span of control, the board of directors performs all the decision-making27. Decisions simply pass to the supervisors then to the workers. The advantages are

rapid decision-making and better sense of direction and control with board of directors well experienced and qualified28. However, since the board of directors have shifted their interest towards real estate, there is delay in decision-making and loss of control. This has caused lack of motivation, as workers feel less valued adversely affecting Maslow’s Love and Belonging and Esteem needs and Herzberg’s motivators. 6. Conclusion

Shanta Garments should change their motivational strategies because of the following:

6.1 The financial motivational strategies of Taylor’s Scientific Management and Theory ‘X’ approach are failing. Workers are still not satisfied with their pay even though it is 47% more than the national minimum wage. Their disposable income has become inadequate because of increasing inflation29.

6.2 Workers are not fulfilling top levels of Maslow’s Hierarchy of needs (love and belonging and esteem needs) due to lack of recognition and appreciation.

6.3 The company is facing budget constraints and there is low profitability because of shift of investment towards Real Estate firm. The low salesrevenue has led to decreases in provision of incentives greatly causing lack of labour motivation. Therefore, cheaper intangible incentives (non-financial motivation) could be a solution.

6.4 Shift of priority of board of directors has caused communication gaps, lack of recognition as the company has a centralized structure. This has caused workers to be lazier, dissatisfied and hence less productive.

6.5 With a centralized structure, workers feel lost and underappreciated as employers are not present to give directions. This adversely affects workers ‘esteem’ and ‘love and belonging’ needs.

6.6 The company, with many branches and high profit margins in the real estate business, could shift investment and profits to garment factory to increase number of incentives and employ new motivational strategies. More investment could go towards labour research.

7. Recommendations

7.1 Because of the budget constraint, the company should employ more non-financial motivation (cheaper to implement).

Herzberg’s motivators:

Job Enlargement: Depending on the skills of the workers, providing a variety of tasks would make work more interesting and workers more flexible. The drag of repetitive and monotonous tasks of producing in batches is improved. Due to lack of education and training, job enrichment and job empowerment is not appropriate30.

Mayo’s Hawthorne Effect:

More picnics or other social gatherings would improve teamwork and interaction between colleagues, which would increase productivity and motivation, as workers feel recognized and have a sense of belonging. Thereshould be team spirit and group dynamics through sharing of skills and expertise.

Recognition and praise:

Henry Ford’s theories of providing ‘worker of the month’ schemes could increase productivity.

More training would increase loyalty and productivity, as workers are more skilled to carry out delegations and require less direction.

7.2 More Financial Motivation:

Increase spending on incentives such as bonuses and fringe benefits

This will increase costs in the short run but potentially increase efficiency and productivity leading to eventual lower average costs and higher revenue.

7.3 Figure 6: Matrix structures

Teamwork, sharing of skills and communication is achieved through matrix structure. This will fulfil Mayo’s Hawthorne effect, Herzberg’s motivators and Maslow’s top levels, as it provides a sense of belonging and recognition, which would increase productivity. The limitations include loss of control as authority is shared and the reliance of communication. Workers with less experience can make more mistakes with decision-making, adversely affecting productivity.

7.4 ‘Zakat’

As Bangladesh is a Muslim country, the ‘zakat’31 could go towards workers. The owners being religious would not consider this as a cost.

8. Limitations

Reliability of the data provided by the owner and the workers as the validity of the data depends on the answers that the company decided to provide which includes their honesty. Solution: Workers can be questioned by other workers who they are more comfortable with to share information The external factor of Inflation of 9.1% in 2008 greatly affected the motivation of workers as their disposable incomes decreased. This could have led to decreasing labour productivity. Inflation also increased production costs causing budget constraints for the business.

*9. Bibliography

Bangladesh Garment Manufacturers and Exporters Association. “Growth of RMG Industry and Employment.” Bangladesh Garment Manufacturers and Exporters Association Annual Report. 2008 ed. 105. Dhaka, Bangladesh. Minimum Wage Board. Minimum Wage Structure for Workers . N.p.: Minimum Wage Board, 2006. Hoang, Paul. “Motivation.” Foreword. Business and Management. By Paul Hoang. Victoria, Australia: IBID Press, 2007. 270-291. - - -. “Organizational Structure.” Afterword. Business and Management. By Paul Hoang. Victoria, Australia: IBID Press, 2007. 208, 216-219. - - -. “Ratio Analysis.” Foreword. Business and Management. By Paul Hoang. Victoria, Australia: IBID Press, 2007. 420-22. Index Mundi. “Bangladesh Inflation rate (consumer prices).” Index Mundi. 2009. CIA World Factbook. 10 Nov. 2008 . Khondoker, Jamil, Uddin. Personal interview. 14 Nov. 2008.

Shanta Group. “Corporate Overview .” Shanta Group. 2008. 23 Oct. 2008 .

10. Appendices

Source: Directly from the Shanta Garment Ltd Factory

Appendix Item 3: Minimum Wage Structure for workers (labour community)

Minimum wage for worker from 2006 onwards as shaded in table:

Salary Grade for worker(Bangladesh Labour Law,22/10/2006)GradeBasichouse rentmedical Total138001144200514022800800200384031730519

2002449415774732002250.1514204262002046612703812001851711253372001662.5

Source: Government Statistics from the Minimum Wage Board

Appendix Item 4: Growth of RMG industry (BGMEA BOOK SCANNED) —FOR SWOT ANALYSIS

Source:

BGMEA

Bangladesh Garment Manufacturers and Exporters Association

“Annual Report 2007”

Pg 105

Appendix item 5: Survey conducted by 30 workers of Shanta Garments -For motivational strategy analysis

Note: The survey questions were translated in Bengali via verbal communication by the researcher (me) so workers understand the questions.

Survey for Shanta Garments (Gulshan) Workers

1. Please indicate (via circle) the salary you receive

2. Please circle your opinions regarding the following areas.

4) Please tick the following you have completed during your education life

School (class 1-5) School (class 1-10) College (class 11-12) University

5) Are you satisfied with the salary you receive? Is it enough to fulfil your needs? Tick Yes or No

Comment (optional)Yes

No

6) Please tick the following that motivates you to work in the company

Higher Wages Bonuses Promotion Commitment to owner Other benefits

Source: Conducted by garment workers of Shanta Garments

Appendix item 6: Tallying of Survey of 30 workers for convenience

Overall satisfaction of jobTallyTotal Tally1II22I13IIIII(5)IIIII(5)104IIIII(5)IIIII(5)IIIII(5)I165I1Overall satisfaction of salary receivedTallyTotal Tally1

02IIIII(5)IIII93IIIII(5)IIIII(5)IIIII(5)III184III35

0Overall satisfaction with the company (Shanta garments)

TallyTotal Tally1

02

03I14IIIII(5)IIIII(5)IIIII(5)IIIII(5)205IIIII(5)IIII9Overall satisfaction of the work environmentTallyTotal Tally1

2

3II24IIIII(5)IIIII(5)IIIII(5)I165IIIII(5)IIIII(5)II12

Education lifeTally

School (class 1-5)IIII3School (class 6-10)IIIII(5)IIIII(5)IIIII(5)III18College (class 11-12)I (highest paid)IIII(5)II3

University

Footnote: In Bangladesh College is referred to class 11-12Satisfied with Salary ReceivedTallyEnough to full-fill needs? (only those who said yes)TallyTotal TallyYesIIIII(5)II -7Yes

0NoIIIII(5)IIIII(5)IIIII(5)IIIII(5)III - 23NoIIIII(5)II7What motivates you to work in the company?MotivationTallyTotal TallyHigher WagesI(highest paid)IIII(5)I6BonusesIIIII(5)IIIII(5)IIIII(5)IIIII(5)IIIII(5)III28PromotionIIIII(5)IIIII(5)II12Commitment to ownerIIIII(5)IIIII(5)IIIII(5)IIIII(5)IIIII(5)II27Other benefitsIIIII(5)IIIII(5)IIIII(5)IIIII(5)IIIII(5)III28Appendix item 7: Interview with Board of director, Mr. Khondoker Jamiluddin (owner)

Interviewer: Zahia Khondoker (me)Interviewee: Mr. Khondoker Jamil Uddin, Board of Directors of Shanta Garments Ltd Place: Gulshan Branch, Mr. Khondoker’s office.

Address: 31, Gulshan Avenue, Circle-01, Dhaka, Bangladesh The interview was recorded in writing.

Short Interview with Mr. Khondoker Jamil Uddin

Q: What kind of incentives or motivational strategies does the company use to motivate its workers? A: We primarily use financial motivation because in a developing country, workers do not need the exclusives that workers in developed countries need. Money is the main motivator because without money they cannot even feed their families. First, the necessities must be given then when Bangladesh reaches a point where we are all endowed with necessities, then workers will think about job satisfaction.

Q: What kinds of financial motivators are given to workers?A: We give all the necessities that the government asks companies to provide. Other includes: Financial Motivation:10,000 Tk ($ 145) after completing 10 working years in Shanta Garments Attendance Bonus: full attendance receives 10% of salaryFree Treatment Provident fun: if someone puts 100tk per month, the company provides Tk 100 100% bonus flat basic for festival bonus instead of 60% bonus asked by the government Q: Does the company provide any non-financial motivation?

A: We have annual picnics and free lunches to workers

Q: To what extent are the motivational strategies successful in motivating workers? A: Well, comparatively to many factories, our workers cause less strikes. However, there are frequent worker complaints about salaries and wages even though we give them 100% bonus. This is more than enough for the country’s working class. However, because of rising inflation in this country, which we have no hands in controlling, workers are very unsatisfied.

Q: I have heard of Shanta Group investing in the Real Estate business. Does that help the garment factory? A: Now in Bangladesh, there are high profit margins in the Real Estate business. We have made the real estate business a focus now so we are hoping to gain more profit, which we can easily use within the garment factory.

Appendix item 8: Organizational Structure (chain of command)

This excludes the Quality department, as it is separate from the hierarchy with only board of directors above them.

Abbreviations:

GM: General ManagerAGM: Assistance General ManagerMM: Maintenance ManagerFM: Finishing ManagerPM: APM: Assistance production ManagerCM: Cutting ManagerSM: Sample ManagerCAD M: CAD Manager

Source: Directly from the Shanta Garment Ltd Factory

Appendix item 9: Profitability Analysis

Net profit Margin (NMP)

NPM = (Net profit/ Sales Revenue)* 100

= 0.80%

Net profit margin shows the percentage of the sales revenue that is turned into net profit. Therefore, for every Tk 100 of sales, Tk 0.8 is only net profit. This profit is left after all the costs of production (both direct and indirect costs) are accounted for. I have chosen to calculate NMP ratio because it is a better measure of a firm’s profitability because it accounts for the cost of sales and the expenses, the higher the NMP, the better for the firm. The results indicate that there is less profit to distribute to the shareholders to invest in the business. Therefore, there is less money to be spent on incentives and motivational strategies leading to lower motivation of workers and hence lower productivity. As there is less profit made in the garment factory, the directors have decided to shift investment towards their business in the Real Estate.

Source: Refer to Appendix 2 for data –collected directly from Shanta Garment Ltd

Appendix item 10: Persistent increase in inflation and consumer prices

Bangladesh Inflation rate (consumer prices)

Source: International Monetary Fund - 2008 World Economic Outlook

Barrientos, Miguel. "Bangladesh Inflation rate (consumer prices)." Index Mundi. 2008. 28 Oct. 2008 http://www.indexmundi.com/bangladesh/ inflation_rate_(consumer_prices).html

Appendix item 11: Proposal letters for Garment factories:

Dear Mr. Khondoker Jamil Uddin,

My name is Zahia Khondoker from International School Dhaka. For my business and management research project, I was hoping to choose your factory to identify one of the problems and carry out an in-depth research to recommend you some solutions from my knowledge of business. The purpose of this letter is to enquire your permission and to request your assistance in allowing me to gather the necessary information I need from your factory. A few examples of the type of data I need are motivational strategies, sales revenue, cost of production, profits etc of the company over 5-10 years. If it is possible, I was hoping to interview you in your time of convenience for this project.

If I am given the permission, I can ensure that your confidentiality rights will be retained and the data will only be used for educational purposes.

I look forward to hearing from you

Thank you,

Zahia Khondoker Grade 12International School Dhaka

Appendix Item 12: Feedback on the research project from the owner of ShantaGarments via Email

Dear Zahia,

Firstly, I really appreciate your interest in my company and conducting an in-depth research to help the company perform better. Your research covers everything that the company is facing and has provided a great insight on the limitations of our strategies. I found it very useful to see that our financial motivation strategies were not sufficient for the workers and especially because of the rising inflation in our country. The survey results were a great help to me to understand my workers. Your recommendations are very comprehensive and I agree with you that the factory due to increasing cost of production and tight budget constraints is unable to provide effective financial motivation. In our country, we are often too led by the idea that everyone is motivated by money only. I will try to arrange more picnics and invest in training so the workers can carry out some decisions. The idea of giving zakat was an excellent idea. Reading this research, I have come to realize that more attention needs to be towards the garment factory. The reason why we have shifted priorities as I have told you in the interview is that firstly higher profit margins in the real estate business and secondly because we have just begun developing this business. However, from the survey results and your research, I feel that the directors should give more recognition and appreciation to the workers.

Thank You again for helping my company, its workers and me. I wish you best of luck with the research.

Khondoker Jamil Uddin

DirectorShanta GroupSTS GroupDhaka Bank Limited

ChairmanJazz Concerns LtdA & A accessories Ltd