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Kainaat case study


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Kainaat case study

  1. 1. KAINAAT GROUP OF COMPANIES (KGC)INTRODUCTIONWith what began as a $700 construction contract, KGC has grown into a multifaceted organization thatcan handle multi-million dollar contracts in logistics and transportation, construction, managementservices, trading, operations, and maintenance, and land cultivation. KGC’s success has largely beendependent on diversification and adaptation to the changing business environment and innovativemeans to stay ahead of competitors in the market.OVERVIEWFounder, Owner, & CEO Muhammad Gul SahibzadaSector Construction, logistics and transportation (L&T), agricultureServices/Products Construction, L&T, management services, general trading, operations and maintenance (O&M), land cultivationFounded Late 2001Website Total: permanent 235; 1000’s of project based staff at any given time -135 skilled and highly skilled -150 unskilled - majority maleSalary Range undisclosedRevenue undisclosedAreas of Operation -Afghan offices: Kabul, Kandahar, Kunduz, Mazar-i-Sharif, Badakhshan, and Baghlan -International offices: Dubai -Construction projects currently operating in 5 provinces; L&T nationwideRegistration Construction: license# 4042; logisitics: license# 0102(Code – 188);Trading:Status/Associations license# 0101(Code – 4425; Dubai, UAE – 3482 Table 1 KGC OverviewBUSINESS STORYFORMATION “The first $700 was my freedom. In the beginning I was not in a place financially to take advantage of the opportunities in Afghanistan, but the first contract gave me the courage that this $700 could become $7,000, $70k, $700k, and even $7m.”Prior to forming KGC, Mr. Muhammad Gul Sahibzada worked as the Head of the Resident Coordinator’sOffice for Kofi Annan’s Staff at UNOCHA in Afghanistan, oftentimes working with contractors. However,he felt rewards and efforts were misaligned at the UN, and he wanted to receive both more recognitionfor his activities and more reward for his accomplishments. Upon leaving the UN, he initially developedbusiness for large contractors and provided services for them such as business developmentmanagement, registration of the companies and launching their Afghan operations. Mr. Sahibzada
  2. 2. gained valuable experience of business start-ups and operations, but soon recognized an opportunity tobuild his own business to capitalize on his newfound expertise. Mr. Sahibzada’s initial investment intoKGC in late 2001 was solely sweat equity. His first contract was a $700 painting contract for a one-roomUN Building.KGC’s early success can be attributed to five defining success factors: 1. Ambition: Mr. Sahibzada wanted ‘more’ and was not content with settling for less control over his earnings and professional direction. 2. First-Mover: KGC’s first contract was in late 2001, thus he was one of the first local construction companies created after the fall of the Taliban. This factor gave him a competitive advantage over others in the market. 3. English Proficiency: Mr. Sahibzada was able to secure the UNOCHA position as well as easily communicate with clients because he could speak English at a proficient level. This certainly influenced his ability to win initial contracts with western donors and implementers. 4. Work-Experience: His position at the UN provided him with an understanding of organizational structure, strategy, planning and other intangibles seldom found in Afghan businesses. 5. Network: Through his work at the UN, Mr. Sahibzada built a network of contacts in the international and local communities that assisted him in winning early contracts.GROWTH “I didn’t begin hiring permanent core staff until 2 years into my operations, opting to just use contracted staff to execute projects as they came in. We were always worried that we would have overhead that we could not sustain with our projects, and we didn’t want to hire anyone and have to fire them because of a lack of work. However, we received our largest contract to that point in 2003, and found a number of talented engineers at the Engineering Faculty at Kabul University, and decided to set up an office for them. This patient and risk-averse model has clearly defined who we are today”KGC has grown and diversified considerably since the initial $700 contract. The company hastransformed itself from a one man operation to a highly structured organization with 235 permanentstaff and upwards of 1,000 contractual staff at any given time depending on projects. KGC can nowhandle 8 figure contracts with ease and professionalism. Recognizing that the construction sector willlikely take a dip in the post-2014 environment, the company has diversified its business interests intonationwide L&T services, trading, management services, O&M, and most recently entered theagricultural sector via land cultivation in a number of provinces. Finally, KGC now has 6 offices acrossAfghanistan and 1 international office in Dubai.KGC’s growth and sustainability can largely be attributed to HR and corporate strategy success factors:Corporate Strategy 1. Diversification and Flexibility of Business Interests: KGC has been able to succeed because it has grown into complementary lines business selected through methodical market analysis. 2
  3. 3. Typically, the strategy is to look at low-cost ways to enter new markets where KGC can learn more about the business, as opposed to aggressively entering with lots of fixed costs. A good example would be Logistics & Transportation. KGC first took on a small sub-contract to learn more about executing projects, while making sure to not invest too much in hard assets, looking at ways to grow capacity and capabilities through agreements with outside providers to provide capacity when needed. KGC expects a downturn in 2014, and has designed its business to minimise hard assets and excess capacity to ensure sustainability. L&T now composes a growing share of KGC’s revenue base, while construction projects are starting to dwindle. 2. Reinvestment through earned revenue, not borrowed capital: Since KGC’s formation, Mr. Sahibzada has fostered a slow growth, long-term strategy of re-investment of revenue earned, not rapid expansion via risky loans through banks or private partners. The company reinvested 90% of its profits to ensure the company could bid for and launch ever larger projects, as opposed to the short-term viewpoint of using profits for personal benefit that many Afghan companies are prone to. 3. Corporate Social Responsibility: KGC believes it is vital to understand the local context in which the business is operating and gain a social license to operate from the community at large. The company builds strong relationships in each operating area, through building infrastructure such as mosques, roads, and bridge or providing healthcare or services to residents. KGC never puts their ethical status at risk by business decisions, as they have invested considerably in their institutional structure. KGC aligns its activities such that social benefit and profitability come hand in hand. Mr. Sahibzada states: “In one project, we needed 500 laborers in a security constrained environment. We were able to hire away Taliban fighters, train them in useful vocations, and rehabilitate them, all because they realized that it was better to work for us for $10/day than $5/day to fight for the Taliban. While the Taliban leaders did not appreciate this and sent me death threats, they could not target the reintegrated fighters because they were all from the same village. I believe if you follow social and ethical good, money will always come.” 4. Perseverance through Culture: KGC hit a major roadblock in 2007 and 2008 with $7 million in losses through two contentious projects with unscrupulous prime contractors and was nearly bankrupted. However, the company proved resilient as it was able to retain much of its staff and capabilities, and it focused on maintaining its relationships and firm reputation with its donors, completing projects at loss. KGC was able to rebuild itself with small contracts and is now beyond 2007 revenue levels. KGC was able to win contracts despite its financial problems due to a strong history of trust with the donor community.Human Resources 1. Talent Retention: Mr. Sahibzada believes retaining and building the capacity of staff is more cost effective in the long-term despite higher salaries than high turnover and lower salaries of new staff members. This decision is driven on the time it takes to train new skilled employees not only on the technical components of the job, but also the business culture of KGC. Much of KGC’s staff has been with the organization for 6-7 years. He believes he has been able to 3
  4. 4. accomplish this by two higher-level principles. First, integrity has been key, as it allows Mr. Sahibzada to motivate staff in good times and bad. He reminds this staff in the face of year with losses that their company is sustainable because it operates on integrity and its reputation with donors and client businesses is intact. One of KGC’s core principles is: “We can lose our money, but never our integrity”. Second, engendering loyalty in employees has been possible because he pays staff half-salary even when there are no contracts at the time. He wants to remind them that they are valued, and that he would appreciate their loyalty in difficult times. 2. Empowerment of Staff: Mr. Sahibzada places great importance of the success of KGC in his ability to “step back” and place trust in his staff to make important decisions. He regularly includes staff members in senior level discussions, shares results with them, and empowered them to help prioritize activities in ways that reflected the realities on the ground. He believes empowering staff members makes them more productive and loyal employees. 3. Building a Quality and Trusted Management Layer: KGC’s growth and sustainability has been possible largely on Mr. Sahibzada’s ability to build a quality management team based on shared characteristics of loyalty, trust, and professionalism. The core management team never demoralizes employees, but rather engages them to ensure loyalty. In addition, they all value trust, and appreciate being trusted by the CEO. That value trickles down to how they treat their staff, and how they expect to be treated. Finally, the work environment is always professional. 4. Respect for Staff: Respect for the staff, especially in the Afghan context, is vital for sustainability for the enterprise. Even when firing people, KGC ensures that the decision is made respectfully, and that even employees that leave the company can speak highly of it. Mr. Sahibzada believes treating employees poorly is the greatest threat to the company’s long term sustainability. 5. Afghan Owned and Operated: Although KGC has a few international senior staff, Mr. Sahibzada believes it is the most Afghan operated firm in its revenue range. The firm has a high-level of sophistication, western systems, and organization structure and capacity, and stands to benefit as “international-heavy” firms depart the country.FUTURE SUCCESS “The next few years look bright. We are looking to further diversify into agriculture, and have recently planted 30,000 almond trees and 30,000 fruit trees in my native Kunduz. In addition, our L&T business continues to flourish and will help cope with diminishing revenue in the Afghan construction sector. Yet, the situation in Afghanistan is so volatile that the long-term is difficult to predict.” 1. Local Governance and Corruption: Lack of trustworthy and efficient government is suffocating business in Afghanistan. A lot of time is wasted without the right people, the right institutions, and the right policies in place to protect one’s business from government interference. Mr. Sahibzada believes that if these major issues are not solved, no business will survive in the long- term that has actually earned its money. 2. Skilled Afghan Workforce: Companies such as KGC rely on highly skilled engineers and as such, need the education in Afghanistan to improve to a level on par with neighboring countries. However, nowadays Mr. Sahibzada states bidding and retaining Afghan talent has become so 4
  5. 5. competitive that it is impossible to continue adding skilled Afghans to the company’s staff. All ofthe comparatively talented Afghans are snapped up almost immediately by foreign companies,leaving only under-qualified and under-experienced staff members that have been quite badhires in recent years. Foreign entities are able to offer higher salaries and local companies suchas KGC cannot compete. Thus, a few senior staff members are internationals. 5