Infoline

Shaping the Destiny of a Public Sector Enterprise

02 Mar 2007 | IIMB Management Review

By J Ramachandran and Vani Venkatesh
J Ramachandran is BOC Chair Professor in Business Policy, IIM Bangalore. jram@iimb.ernet.in
Vani Venkatesh is an alumnus of IIM Bangalore and is currently working with a management consulting firm, vanivenk@gmail.com
Ashok Sinha
Ashok Sinha is Chairman and Managing Director, Bharat Petroleum Corporation Ltd. An electrical engineer and an alumnus of IIM Bangalore with 29 years of experience in the petroleum industry, he has received several awards, including the India CFO Award 2001 for Information and Knowledge Management by the Economic Intelligence Unit (EIU) India and American Express.
(This article was published by IIM, Bangalore in their publication, IIMB Management Review Vol.18 No.4 December 2006 and is reproduced with their permission)
At the time of independence, Burmah Shell had a dominant presence in India, with a market share of 67%. However, nationalisation of oil majors was inevitable and Bharat Petroleum Corporation Limited (BPCL) was formed in 1976 consequent to the nationalisation of the erstwhile Burmah Shell Oil Storage and Distribution Company and Burmah Shell Refineries. Constraints imposed by the government were aplenty and it was little surprise that the company`s share collapsed to a meagre 15% of the market. After a period of three years of further decline and inaction, BPCL embarked on an effort to resurrect itself. This involved extensive representations to the government to increase its share of allocation of new business opportunities. In today`s competitive world, it is acknowledged that it is the human factor that gives a company its edge. Acting with far reaching vision and foresight, BPCL has consistently nurtured its employees and picked the best entrepreneurs as its dealers. It has thought of customers in an era of public sector dominance where customers were taken for granted. It has several `firsts` and `biggests` in India to its credit- first to introduce premium fuel and first bottled gas, largest loyalty programme and largest convenience store network to name a few.
J Ramachandran and Vani Venkatesh spoke to Ashok Sinha, CMD, BPCL to understand the journey from the days of steady decline to the current position of leadership in thought, action and innovation. Embedded in the company`s DNA are three remarkable traits - ability to get the government`s buy-in on step changes, ability to think ahead of the curve and appetite for innovation and change. Ashok Sinha reflects the spirit of the company - the courage, conviction and pride that got BPCL to where they are today, and the belief that they still have a long way to go.

JR/VV: Bharat Petroleum has done remarkably well over the last decade. It has set the pace and changed the competitive dynamics in the market place. We wanted to understand the extraordinary transformation.

AS: I`ll give you a brief history of the company first, because it really goes back a very long way. We have been here in India in some form or the other for a very long time. It began with the consolidation of Asiatic Petroleum in India in 1907 under the name Shell. In 1928, the company was registered in London as the Burmah Shell Oil Company. At the time of independence, it had a whopping market share of 67%. In 1950, the government decided to do a one on one negotiated deal. Shell came to build a refinery in Bombay and thus formed Burmah Shell Refineries, a company registered in India. Burmah Shell dominated till the 60s, when the Indian Oil Company (IOC) was formed. There were some foreign exchange problems with multinationals taking the line that they were not going to deal with Russia, which was important for India because we needed the barter or `rupee trade` agreed upon with the Soviet bloc. The IOC refinery was put up with Russian help in Barauni. And from then on it was quite clear that Burmah Shell would ultimately be nationalised, although it was negotiated that the refineries would not be nationalised for 25 years. But slowly the government business and in particular the defence business decreased. And over time our market share collapsed. By the time the company was nationalised in 1976, our market share had come down to 15% and IOC had grown to 60%. There was a huge exodus of people and our decline continued, until 1980 when we again started to focus on growth. Gradually, with a new Chairman and an infusion of fresh blood from outside, we began to look at growth and rebuilding the company back to what it was. I was one of the first recruits after nationalisation after a 15 year period when there had been no recruitment. By that point, because of the pressure both on products and on size, we had simply sold off everything as it stood to IOC. We had been present in 90 airports, which were reduced to two; from 40 LPG plants, we were down to two. So we had to work hard at getting back into the mainstream.

JR/VV: What was it like to be joining the company at that time?

AS: Frustrating to begin with, as the company was brought into the public sector mould - the structures, the compensation packages etc - and everybody was focused on how the negotiations would go with the government, what settlement package they were going to get, how were they going to be fitted. Many asked us why we had joined! But some time later the tide turned. Some like me saw the whole thing as virgin territory. As did some of the others who stayed back very consciously, taking pay cuts, perk cuts etc. We then got into a serious mode of recruitment including from other oil companies because some five or six hundred people left at that time. What you see today is built largely by that bunch of people. We all saw a company that had some very good systems and practices, and a strong customer and people focus. And there was that pride. Burmah Shell used to be known as the top company to join. That pride was what kept the company going. For example, in spite of the decline, we remained leaders in retail.

JR/VV: How did you remain leaders in retail?

AS: I think it was largely because we picked good dealers and developed them into entrepreneurs. And we held on to them even as other parts of the company were being sold. I remember when I took over as Chief Retail Network Manager in 1986, the budget for the entire retail network was Rs 2 crores (Rs. 20 million). I went to my boss and said, I cannot work with this; it is time for us to get back into the market. And immediately I put up a paper with revised estimates and the budget went up from Rs 2 crores to 10 crores.

JR/VV: Investing in retail was a farsighted decision in an era in which the customer was taken for granted, especially for petroleum products.

AS: That`s very true. Our primary focus was on the dealership network. Apart from retail location, which is very important, the reputation of the dealer is also crucial. The customers` perception is based on the service they get from the dealer and the dealer in turn gets from the company. That is the key to the whole business. Over a period of time, despite the proliferation of IOC bunks, BPCL`s standing in the market helped in retaining our market share. It was a general perception that if customers went to our outlet they were getting the right quality, right product and so on. Even when we got into the Administered Pricing Mechanism (APM) -the whole mathematics of who got what - we gave up our bulk business in favour of growing our retail network. We could have taken any position as it was essentially an allocative process, but we chased retail outlets. Our strength lay in our locations in all the cities. That`s the reason why our market share in petrol remained high. For instance in Mumbai you won`t see too many IOC outlets, even today. There`s no space. You`ll only see us or HPC. That was our strength at that time, which may not be a strength today, because cities have grown and pockets of business have also grown elsewhere.

JR/VV: What motivated you people to chase? Wouldn`t you have looked at yourself as Government of India?

AS: I think the pride, the need to show that we had the ability, that we were number one, kept it going. There was a rivalry. You can say what you want, that we`re all government, that it doesn`t really matter and so on, but the rivalry was very intense. And it remains so today. The first numbers I get are my numbers, and those of IOC, HPC and IBP.

JR/VV: How did you maintain an identity different from say, IOC?

AS: Firstly, we came from very different origins. IOC was staffed by ex-employees of Burmah Shell, Esso, etc. Even today the private sector is staffed by people out of Bharat Petroleum. That intense rivalry continued because we were fighting with our backs to the wall prior to nationalisation. Everything was IOC`s. They squeezed you, didn`t give you a product, you really had nowhere to go. And therefore to maintain a distinct identity, in spite of the fact that IOC was nine times our size, we chose retail. Second was our focus on our people. So we had a name in the market place. And a name inside for fairness. People looked up to the company, in whatever way.

Thought Leadership

JR/VV: Was the liberalisation of the economy in 1991 an inflection point for Bharat Petroleum?

AS: It was. In 1991,1 was General Manager, Finance, and we really took Manmohan Singh`s economic policy seriously. This had been debated since 1986-87, at every level, and we ourselves would say `Aviation? How can you open aviation? How can anybody fuel planes, other than us?` But we did see liberalisation coming. In 1991 the public market for kerosene and LPG opened up, though they remained the biggest sources of subsidy. We realised that this controlled mathematical world wasn`t going to last - sooner or later the competition would come. It actually came much later, but we took it that competition would be there. One of the first moves we made was to approach Shell for a joint venture.

JR/VV: Joint venture into what?

AS: Lubricants. We entered into a joint venture in 1993. As it was more for learning than anything else, we gave Shell a liberal package (including a 51% majority stake in the venture) instead of quibbling about the ratio and who would be Chairman and Managing Director. We had a tough time convincing the government, but ultimately the venture gave us a lot of insights.
It was very low end and low risk. At that time, we used to make just about Rs 20 crores of profits in the Lubricants business. Our expectancy was that when competition came in, the margins in the business would get squeezed, but actually the opposite happened. About 35 companies came in but thanks to liberalisation, our margin went from Rs 20 crores to Rs 80 crores, because earlier the margins had been controlled by the APM. There were no margins on each thing, you put everything in a pool, deducted your cost and decided the profit. The process of liberalisation also liberated the profit margin!

JR/VV: How did you achieve knowledge transfer from the joint venture to the parent company?

AS: We gained a lot of knowledge just interacting with them. That joint venture and the negotiations with Shell gave us first hand experience on how Shell operated, how to build a refinery and how to go about thinking about it. And later, in 1994-95, when we started to work on an assessment of the future of the industry, BPCL got involved in developing the Hydrocarbon Vision 2010. Our then Chairman was a leading member of that forum, and about 40 of us were involved. Ten of us attended the talks in London and soaked in the presentations made by all the business heads of Shell.

JR/VV: How come so many of you went?

AS: At that time, we took a critical decision to start sending people out. Unless you go out and see the competition for yourself, you will never understand it. Our top people went round the world, and read everything that was available on liberalisation and deregulation and produced the report. It is quite a classic report if you look at it, we went into all the nitty gritty. And that got ingrained in the company - the core message that if you wanted to survive, you needed to change.

JR/VV: In a sense, if we hear you right, even though you didn`t have the market leadership in terms of volume, this company always had the thought leadership.

AS: Yes, definitely. You could see it everywhere. Take Retail. The `Pure for Sure` campaign is illustrative of our thought leadership. We did the same in other spheres. Take the Hydrocarbon Vision for India that was a Government initiative in the 1990s. The Vision 2010 Report was essentially `our vision`. We had 30 leaders, pulled them out from wherever they were, and put them to work on the Report. Even though there were people representing other oil companies, we wrote most of the chapters of the report.
Similarly we were the first public sector company to be listed and the first to offer our employees shares of the company.

JR/VV: How did you achieve that?

AS: The 1991 Economic Policy recommended selling 20% of public sector enterprises. But no one had a clue about how they were going to do it, because nobody really understood the public sector. You will not find BPCL or any other PSE in the Economic Times or any business paper pre-1991; we were not in the economic scenario at all. But we knew we had to get out to the customer. That was what drove us. Fundamentally we knew we must change. Following the Hydrocarbon Vision Report, we internally formed what was known as Project CUSECS (an acronym for Customer Service and Customer Satisfaction). Essentially the project was meant to communicate to the organisation the message that ultimately it is the customer who will let you survive. The CUSECS project report had one fundamental message: change or perish.

JR/VV: What was the perish scenario looking like?

AS : Perish scenario was that someone would come and simply take you over, or you would start shrinking in size, you would lose volumes. There was no way we could have faced competition with our structures and our ways of doing work. Getting listed was the first step. Here again we charted the entire project approval process, based on what we needed to be competitive when deregulation took place. We worked out the DCF analysis and valuation of 31 companies to get the figures. At a later stage, we managed to get government approval on giving shares to the employees.

JR/VV: Was there a fear that all the public sector oil companies would be merged into one and you would lose your identity?

AS: The possibility of merger of public sector undertakings was not on the cards then. Not until very recently. The Government had studied the issue in depth in 1976. The Damle Commission recommended that the entities be kept separate for strategic security. If one created a monolith, the country could be held to ransom.

Driving Change

JR/VV: What did you next do to prepare the company for competition?

AS: In 1996, Dr Kelkar, then Petroleum Secretary, decided that each of the oil companies should take on a consultant. Based on the needs of each company, he actually picked people for us. We took on Arthur D Little, IOC took on McKinsey, Andersen went to HPCL. This was the time when we picked up another set of 35-40 people at different levels. We then worked out an entire change plan. First we did a visioning exercise, and the key to this was involvement. We said for this change plan, we are all stakeholders, so we involved a lot of people at all levels - consultants, our employees, everybody. We asked ourselves where we wanted to be, what we wanted to do and why. We ended up formulating our vision not as a sentence, but as a set of words and phrases articulated by the people. There were nine or ten of these -vision, values and aims - and we accepted them all. This provided certain foundations for learning. One of the things that came out clearly was that the only way you could beat the competition was by remaining a learning organisation. We have translated these foundations for learning into all languages, right down to the worker level. I think that is the most important thing - you have got to take everybody along. It is not going to happen if you just sit here and hand down decisions.

JR/VV: Has the same thing happened in other oil companies as well?

AS: They all took on consultants, but everybody had a different focus - computerisation of processes or ERP. For us, the visioning exercise seemed the necessary first step for change. Next we really went into (and this was the brutal part of it) the current reality - holding the mirror up to the people. We then put the two together - vision and current reality -and came up with a change plan, consisting of about 200 initiatives covering every area and function. One such initiative, for example, was how and where to reduce the customer-cylinder ratio in LPG. Earlier it did not matter to us, because we were being paid on the assets. So the more cylinders we had, the more money we made! But in a competitive context that would not be the case. So even though the APM had still not got dismantled, we started this project. We have brought the ratio down from 1.4 to about 1.2. That itself must have saved us about Rs 60-70 crores in inventory.
We next grappled with the issue of implementation of the change plan. Issues like what kind of organisation structure would take us closer to the customer.

JR/VV: Sometimes the current reality and the vision are a mismatch. It can be very debilitating to the organisation. How did you grapple with that?

AS: It`s a leap of faith. You don`t know what will happen, and you have to keep running your organisation while you`re working for a system to come. At that time, we were still under the APM system. In fact, the next stage of working out the processes was even more chaotic. We had to handle so many changes, and with paper moving all over the place, the customer was nowhere in the picture. We debated every step and detail of the plan as we went along. We also did two management programmes, namely Foundations of Learning (FOL) and Visionary Leadership Programme (VLP), for our people at our training centre in Juhu in Mumbai. There were still some structures that not everyone agreed on, but finally on July 1,1998, the transition committee, of which I was in charge, put up a transfer list of 3000 people. It was utterly chaotic, because how do you break up into six different structures, all self-contained? We picked the SBU leaders and told them to sort it out among themselves, pick their teams and do the asset reallocation. I got a lot of flak during that period, but we pushed it down somehow and ultimately I think everybody took their share of the responsibility.

JR/VV: The new structure is very geography oriented.

AS: Yes, completely. The divisional office is also the regional office, and has all products and services in the region reporting to it. We embedded the support functions - Finance, HR and so on - into the business. One of the principles we laid down was that serving the customer took priority. If the business unit needed a Finance or HR guy to serve the customer, he had to go there.

JR/VV: How did you integrate the various business units?

AS: We put into place some integrating lateral mechanisms and formed councils, including an Executive Council to oversee all the major entities and the business units. At the next level there were Regional Councils. The tricky part about integrating everything back here is that you have to be careful not to leave the customer alone. We spent those four-five years being very focused on the customer - who is the customer, what is he? Is he your dealer, the final customer, what`s the difference between a customer and a consumer? We went through all these debates. Once we had a structure across with territory managers, reporting relationships collapsed, because if you have to service a customer, you have to be quick. Empowerment is the key. Everything short of the Chairman`s powers was given to business units. This was a fundamental change, something no public sector undertaking had ever contemplated. To the extent that today the powers left with me and my Directors are very limited. We mainly see papers that are to go to the Board.

JR/VV: Letting go must have been a big, big challenge.

AS: Yes, it was, but we said, if you don`t empower the guys, then you`re back to the same story. That was my ex-Chairman`s wisdom. So the Chairman`s power is just about Rs 8 crores. The rest lies with the business heads. But we put in structures to safeguard them. Everything has to be cleared by a committee. It`s not a single person`s decision.

JR/VV: You didn`t have to go to the government for any of these decisions?

AS: No. The powers were already with us. It was only that we were delegating the same and empowering people. This company has always moved when it felt it was time to move on. We felt that we needed to restructure ourselves, and so we did. Of course, the government had a lot of questions on our entire change plan. They kept saying, give us a consultant`s report. But there was no consultant`s report because we had developed it in house. So we kept going back and forth between the board and the Secretary in the Ministry of Petroleum, making presentations. They had to be convinced that the risks were not too great. I think it is the level of passion, of conviction in us that got their buy in. For example, the government was interested in our taking the unions on board, so we did.

JR/VV: You said there was no consulting report. What is your lode star?

AS: The change plan is our lode star, we live with it. Our consultants helped us to think through these issues and come up with the plan. In it we have mapped everything that needed to be done, the benefits, the resources, the time line, and who has to do it. It was recorded for all the 200 initiatives. Out of that we must have finished 100-150; some may have fallen by the wayside, but the process was going on. And once we had the structure in order, we realised we needed a similar conceptual framework for processes. We again mapped every process in the company - 900-odd of them. Because processes and structures must go together if you have to deliver. Customer delivery: the starting point was there.

JR/VV: Were there no dissenting voices in this process? One would expect some opposition in a typical company.

AS: I am sure that, during this entire process, there must have been people who had reservations, who thought these high-flying ideas wouldn`t work. There were sceptics, but the involvement kept energising the people. They had no choice.
After the conceptual design phase, in which we mapped all the processes, we got into SAP. That itself was a huge struggle. Nobody wanted to call in external consultants, but in the end we spent about Rs 2 crores, we called three vendors. We debated the benefits of SAP over any other ERP and then decided on SAP. It took six meetings in the board to get the clearance. Finally I convinced them that we really needed this - we were processing paper to the tune of 2,50,000 invoices per month and we never managed to reconcile anything to anything. Even 1% off is crores of rupees, so in the end they agreed.

JR/VV: Implementing ERP is not easy. It can be quite challenging.

AS: Yes, it was. We moved into that somewhere around 1998. By 1999, we had a whole team going. We trained our own guys, and in fact several of them - business people - became SAP consultants. In 2000, we went live. It was one of the fastest implementations. We believe in doing things with a big bang - no sitting around, waiting for something. It took 18 months to go across 400 locations. On the first of every month, around 30 locations would suddenly have no other system but SAP. That configuration was a huge challenge for us. During the peak implementation there were 160 people in the team. At that time, we were not recruiting, so they had to come from within. Our sales people and strategic business unit chiefs were all worried about sales because we were taking away their people, but we took a call and said forget sales. This is priority. Sales didn`t go down and we had our implementation rolled out rapidly. Today our IS and IT systems are well recognised and we are invited to conferences world-wide to speak on how to run a SAP competency centre. Indeed whenever SAP goes anywhere for consultancy, they refer the clients to us -we`ve done change management and assisted in implementation of different modules of SAP in companies in Malaysia, Thailand, Finland, Qatar and Australia. Recently a three member team from BPCL was called up to do a quality review of the implementation done in Petromina in Indonesia. NTPC, which recently opted for SAP as its ERP solution, has engaged BPCL for leading the change management effort. Besides, SAP engages people from BPCL as faculty for imparting training on the different modules of SAP.

Setting the Pace

JR/VV: The courage of this organisation is amazing. Is it inherited from the Burmah Shell culture, or are you just lucky?

AS: I don`t know; perhaps. There are no Burmah Shell people left in BPCL today, but they must have left some legacy of thinking and so on. As far as luck goes, I don`t think we are as lucky as I would want to be. I think it is more that we are willing to take risks.

JR/VV: How did you hit on that brilliant `Pure for Sure` and then Speed and Petro Card?

AS: All this was part of the change plan. Speed came first. These initiatives involved a lot of thought at the top level. What is the brand? What do we stand for? What is the value perceived by the customer, and so on. We came up with three core values that the brand must have - caring, reliable and innovative. The last triggered a lot of debate: Why `innovative`, were we going to do R&D? How could a brand be innovative? But I felt that was the core of the brand, and without it we weren`t going to get anywhere. So three core brand values got established, again through a very consultative process across a large part of the company.

JR/VV: How does it work?

AS: There is a whole third party certification process. We own only about 200 outlets. The core of our network - about 7500 outlets - is franchised. We provide the guarantee at almost 70% of these franchised outlets. We also have our own spot checks and so on.

JR/VV: Are others also coming into this space?

AS: Yes, they moved in immediately. But we are still ahead because of the kind of homework we did before we hit it. Similarly with Speed. We were first off the block. People saw a difference. If customers don`t perceive the advantage, they won`t buy it. The real test is - if taxi guys start using it, you know that your product is different. We then started using the Speed brand as an incubator. For instance, we use the same Speed for motor spirit and diesel and it has become generic for the category. People will go into any oil company outlet for instance, and ask for Speed.

JR/VV: How does Petro Card work?

AS: Petro Card again was a first in India. It is a pre-paid debit card with a smart chip, so it keeps accounts. And with it we built in loyalty points. Everybody thought we were nuts, expecting people to pay in advance against future fuelling requirements. We launched it in 1999, just after Master Card and Visa Card had made a presentation to RBI, saying that India would not be ready for smart cards till 2007! Again, we used the brand to position it. It has worked very well.

JR/VV: To what extent do customer related and organisation related initiatives run in parallel?

AS: They are all part of the same thing. Everybody is involved, innovative in his own way. Take our Beyond LPG initiative. The LPG business unit, in spite of the subsidies, was making huge losses. So we gave the LPG distributors this initiative. They needed no money, no infrastructure, they just had to play the middleman. It only took them one day to do an appreciative enquiry, and now they are selling tea, pots and pans, and Honda generator sets. Once that empowerment went down, the innovation chain got started. In Udaipur, for instance they found a new way to sell the expensive Honda generator sets - they got together 20 people, each one put in Rs 1000, and they ran a kind of chit fund. Every month one guy gets his Honda set.
Another new initiative we have is a competition within the organisation called Ideas. Actually it is more about what you have actually achieved on the ground than about just ideas. The nominations are evaluated by a panel of external experts - IIT and IIM professors and so on. This year we have about 276 nominations. There`s a lot of amazing stuff.
On the market front, we felt the need to differentiate once more. So we have just finished another market research exercise. The traditional model of segmentation is the A/B/C/D/E classification, or the two wheeler / three wheeler / four wheeler classification. We are now looking at a very different market segmentation - micro markets with six or seven segments into which each retail outlet will have to be plugged.

Changing Gears

JR/VV: How do you keep your people on the edge? Where are these ideas coming from? How do they keep themselves up to date?

AS: One of the first things we did - maybe we were one of the first to do it - was to make Internet access absolutely free for all. This was part of our policy of empowerment, of providing exposure. Getting Internet access in the early days was priceless. But to our people it was free. BPCL was one of 100 companies chosen by the CIO, USA magazine as leaders of the 21st century. The only other Asian company was Honda. And the citation for the award says, `for leveraging people and technology`.

JR/VV: Yours could be a text book case of transformation. You put the leadership in place, thirty or forty people, did your structural change, then you did process change, then set the pace in the market place by pursuing innovation. .

AS: I don`t know much about what goes into the textbooks! But I think there is need for constant renewal. People are looking for things to do. At one point, things were declining. We had a two-year status quo, and we needed to get back into a growth mode. I said let`s revisit our achievements and review them as things are changing. So we went through an internal exercise in which we drilled down to discovering our core strengths. We adopted the appreciative enquiry framework. It`s essentially based on the four D`s - discover, dream, design, deliver. Starting off with the top management, we covered almost a thousand to twelve hundred people and what`s amazing is how everybody talks about the same things. We call the output of this exercise Project Destiny and it is for 2010. .

JR/VV: What is the BPCL destiny? .

AS: It`s the change plan over again, though we are not calling it a change plan this time. We will double our volumes and quadruple our profits. We want to get onto exploration and production. We have already moved on this. Today we have blocks in Oman, Australia and East Timor. We are moving into Assam, Krishna Godavari basin, Mahanadi etc. We also need to grapple with the problem of providing energy to every village. Rural needs are very different from urban needs. Pricing points also have to be very different. This is something we need to study. I believe that the future lies in self-regenerating energy- solar, biodiesel, ethanol. .

JR/VV: What are the challenges you face? .

AS: Three challenges. The first is integrating the organisation - we realise that over the last couple of years we have developed silos. The second is the supply chain. The third and the toughest challenge is human resources. One problem is attrition. It`s very difficult to get people at our salaries. We have started work on a project called `Project Caliber`, which is a kind of succession grooming or leadership training. I will be spending significant time on Project Caliber ensuring that we have enough talent pool to carry forward the good work. We have a lot to achieve and a long way to go! .

JR/VV: We are very sure BPCL will realise its destiny under your leadership. Our best wishes to you and your team.