Organizational Redesign At BPCLThe Challenge Of Privatization Shane Mathews | Vaibhav Vyas

History▪ 1975 – GOI acquired Burmah Shell Refineries (business- storing and

distribution company)▪ BSR, a foreign company established in England in 1928.▪ 1976- BSR renamed Bharat Refineries Limited & 1977 to BPCL.▪ Between 1991-1994, GOI disinvested part of holdings to FII and BPCL

employees (66.2:33.8)

Company Background▪ BPCL- Government owned company incorporated under The Companies

Act,1956 with its headquarters in Mumbai▪ Business – Refining , Storing, and distributing of petroleum products▪ Paid up capital- Rs 300 million (GOI-66.2%,Private hands-33.8%)▪ Areas of operation- retail, lubricants, LPG, aviation Fuel▪ Integrated Petroleum Refining and Marketing Company

Cont’d-▪ Fortune 500 & Forbes 2000 company▪ Sales Volume 27 Million MT▪ Revenue US $ 31 Billion per annum▪ Two Refineries at Mumbai & Kochi and One subsidiary Refinery at

Numaligarh ▪ Large distribution network across India 425 locations▪ Network of 8400 Retail Outlets and 2,200 LPG Distributors ▪ 14200 employees

Company Environment• Mostly employees do not understand the nature of the business what

we are doing.• Our core competence is not refining crude oil but selling products.• BPCL formed a project group of consultants. They formed a project

group with over 30 people drawn from different functional and regions with a general manger as their leader. It was called project CUSECS customer service and satisfaction.

• BPCL with a package of vision strategy structure process he asked the management to carry through a very broad visioning exercise.

• 2500 mangers participated. It resulted not only a clear corporate vision identification of shareholders, and statement of core values, but vision were collectively.

"People above oil. We care for you, we exist because of you"• Satisfaction of internal and external customer.• The challenge is to mange this situation with effective leadership at all

levels.• The finance director and his team of six members are impossible for leading

and coordinating the strategy development effort at the corporate level.• There would be a wide gap as 70% of our recruits are not as good as our

competitors; they are average.• The profile experience and expertise for the job are not there.• Organization used the other workshop to trend the staff and communicate

and coordinate in each and every department this has brought about much better understanding and commitment to the change process.

Crisis▪ Before deregulation▪ 3 main players: BPCL, HPCL, IOL (private player Reliance, Essar)▪ Enjoy monopoly under APM of GOI.▪ Private cannot compete openly.

▪ After deregulation▪ Open Competition in industry▪ 1999 deregulation effect on lubricants : market share dropped from 16% to

4%▪ Retention of market share serious issue

Issue• Loss of market share due to increase in number of players.• Product prices will be determined by import parity prices.• Margins set by competitive pressures will be more volatile and highly

uncertain.• Shifting of allegiance of dealers and distributors.• Trained and Experienced manpower will be lured away by new

entrants.• Retain customers and remain profitable

Need for Redesign• Increase in demand for petroleum products in India.• Strong customer focus needed to understand and respond quickly to

customers need and expectations.• Speed at which staff respond to the market will determine the success

of organization.• Main focus on customer loyalty.• To focus on customer and make decision faster- de-layering the

hierarchical organization and by empowering staff.

Main Aim Of Redesign- to be ready for change

Organizational Redesign• Started in 1998 with the help of consultant Arthur D. Little and its

group of consultants. • They formed a Project Group with over 30 people drawn from different

functions and regions with a General Manager as their leader.• It was called Project CUSECS meaning customer service and customer

satisfaction.• Their main thrust areas were better customer service, profitability,

creation of strategic business units (SBUs) and dividing the organization into regions.

• After redesign ,the organization is mostly participative and team based with absolute delegation of authority.

Initial Phase of Redesign• BPCL is capable of extracting 7 to 8 million tons, whereas the demand

ranges about 16 to 18 million tons of crude per year.• To address this gap, BPCL acquired Kochi Refineries, which has a

capacity of about 8 million tons and is looking forward to expand opportunities in the refinery business.

• Hired the internationally renowned consultancy firm McKinsey on formulating an effective retailing strategy and opening of convenience and grocery stores.

2nd Phase – Organizational Redesign▪ Change of organization structure from functional to

divisional enterprise.▪ Spread over 4 geographical locations▪ 6 SBU ( refinery, retail, Industrial, Lubricants, LPG, Aviation)

▪ Management was told to carry out broad visionary exercise.▪ 2500 managers participated▪ Created a clear corporate vision, identification of shareholder &

statement of core values

Change in Vision“Core competence is not refining crude oil but selling products”

“Business partner first, business partner last”

(main theme of business)

“It’s a great place to work” (HRM)

“Service today, to be there in future” (lubes)

“People above oil, we care for you, we exist because of you” (Retail)

HRM Redesign

▪ Embedded support Services- each SBU has an HRM personnel.▪ Shared Support Services- supports tasks that have enterprise-wide and

region-wide implications.▪ Corporate services- providing of services i.e. providing information and

support proactively. They provide support to the main business

HRM

Embedded support services

Shared support services

Corporate Services

Recruitment Process▪ Redesign entailed strengthening the field force to boost marketing and

customer focus.▪ 50% increase in the sales force and frontline staff but without any

additional recruitment (hiring freeze).▪ Redeploying management staff from back office and retaining them.▪ Recruitment done for only specialized and new jobs▪ Introduction of competency mapping▪ Promotion expected only after 3 years in BPCL.▪ System of Job Rotation- for promotion experience of 3 departments .▪ Major focus on Retention and Redeployment of Employees

Challenges of strengthening of PMS• High degree of alignment between business plan and

individual goals• Consistency in KRAs across the similar roles e.g. Territory

Managers• High degree of discipline especially in terms of time line• High degree of standardization in end to end PMS process

PMS▪ Visionary Leadership and planning (VLP) workshops.▪ Functional perspective changed into team based, collaborative, cross

functional mindset.▪ Employees invited to participate in learning experiences through

Foundations of Learning (FOL)▪ Rewarding good performers/teams to achieve performances

(combination of monetary and non monetary reward)▪ Rightsizing through VRS▪ Performance measure – Financial (ROCE, ROI, IRR) and Customer

satisfaction (Market share and CLI).

Effect of Organizational Redesign2003 2002 2001 2000 1999

Net profit 12,500.28

8,498.30 7,927.16 7,038.55 7,012.35

Manpower

12670 12638 12264 12094 11704

41%

25%

17%

10% 7%

% Share RefiningIndian OilRPLBPCLHPCLONGC

23%

9%

8%

59%

% Market Share

INDIAN OILBPCLHPCLOTHERS

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