FORE The competition was an external factor
FORE School of Management Hindustan Petroleum Corporation Ltd. Case WAC ReportAnchit Agrawal (271127)SynopsisIn the beginning of the 21st century a major governmental decision regarding privatization in the Indian oil industry lead HPCL to undergo a major organizational transformation in order to cope up with the change in ownership and increase in competition.
The competition was an external factor and the most obvious thing for HPCL to do was to cater to that. However, the company concentrated on their internal communication in order to ultimately act on the external factor and growth through vision and mission enhancement. In less than ten years, HPCL had involved employees in a process of structured conversation and believed that they had earned a significant amount of success in the same.
Situation Analysis HISTORYThe company was incorporated as Standard Vacuum Refining Company of India Limited on July 5, 1952. On March 31, 1962 the corporate name was changed to ESSO Standard Refining Company of India Limited. On July 15, 1974 ESSO Standard Refining Company of India Limited and Lube India were nationalized and merged by the Government of India to form Hindustan Petroleum Corporation Limited (HPCL).In 1976 Caltex Oil Refining Limited was also nationalized by the Government of India and subsequently merged with HPCL.
In 1979 Kosan Gas Company was nationalized as well by the Government of India and then merged with HPCL.In 1995 HPCL went through partial privatization with the sale of 49% of the company shares to private investors. During 1995-2003 the Government of India continued its efforts to deregulate the Indian oil industry.CURRENT SCENARIO2003 marked the beginning of the organizational transformation, the launch of Project ACE (Achieving Continuous Excellence).
In spring of 2013 the vision workshops were organized. 14 people from within the company were appointed as ‘workshop coaches’, who led hundreds of sessions and reached thousands of employees. Each workshop included 20 participants and lasted for three days. These workshops were designed to produce a specific outcome, which was the participants’ shared vision for their department, business unit and company as a whole. These workshops consisted of two important segments.
During the first segment participants discussed their ‘personal vision’ i.e. the goals or aspirations they have for their families and themselves. During the second segment they discussed their ‘organizational vision’.
In summer of 2013 the vision was implemented. 20 cross-functional teams with young people who had been with HPCL for less than 10 years were formed and assigned a specific market segment. There were a few outcomes of this approach.
One of the ladies from the Finance department observed the need to have clean washrooms in their outlets on highways. HPCL also started to modernize all of its outlets, on the basis of insights provided by the teams, in order to enable greater visibility and a more unified look. Another outcome was the identification of absence of retail outlets on secondary highways and near villages. Due to this farmers and villagers had to travel long distances to buy fuel.In 2004 to tackle the absence of retail outlets near villages, HPCL decided to install outlets, which were smaller in scale and cheaper than the ones along major highways. These outlets were called ‘Hamara Pumps’. Each Hamara Pump required an investment of one-tenth of the investment required for a full-scale urban outlet and the returns from some were twice as much of what planners had expected.
2007-early 2009While the change initiative was in the picture, HPCL developed its digital technology to facilitate two-way internal communication. The company developed its intranet portal, MyHPCL. The ‘e-care’ section of MyHPCL was used to offer the ‘ICS (Internal Customer Service)’ program. Through this program employees could submit a service request or grievance to the company. The company also offered the ‘Coin Your Idea’ digital program, wherein employees were provided with the opportunity to propose new business practices for company leader to consider.
In early 2009, HPCL incorporated a new feature on its intranet portal. The portal now offered a pair of blogs – one for use by the CMD and other directors and the other used by all other employees. January of 2009 proved to be a test for HPCL. The members of the Oil Sector Officers Association went on strike against the nominal salary increase by the government. Refineries all across India were shut down and reduced production. Gas pumps went dry across many parts of the country.HPCL, however, continued its operation.
Even HPCL wasn’t happy about the nominal salary increase but it didn’t want to hold the country ransom for its own benefit. During the two days of strike, HPCL workers ended up working 20 hours a day in order to accommodate the demand for HPCL products. At the end of the strike HPCL passed with flying colours. Even the government congratulated HPCL saying that it saved the country.
In April 2009, the HPCL CMD posted an entry on the blog titled ‘Time to be no.1’, in which he suggested to aim at the leading position in the Indian oil industry. In 2010, HPCL, a fortune Global 500 company, had 11,000 employees and annual revenues of more than $23 billion.
Data source: HPCL Case 2010PROBLEM IDENTIFICATION AND ANALYSISFalling share prices: HPCL buys crude oil and processes it in their refineries to produce petrol and diesel. As the crude oil prices rise, the cost incurred by the company will go up. However, it’s not very easy to increase prices of petrol and diesel proportionately. Therefore, HPCL’s profit margins will decrease with increase in crude oil prices as price of petrol and diesel increase marginally. Lower profits would mean that investors won’t be interested in HPCL stocks and therefore demand will decrease.
As demand decreases, share prices fall. HPCL stock price variation from 2001 to 2018Falling stock price in the past one yearImages source: https://www.moneycontrol.com/stock-charts/hindustanpetroleumcorporation/charts/HPC#HPCLack of external communication: The Company focused more on internal communication than it did on external communication because it wanted to first concentrate on its ‘internal customers’.Logistics Cost: The refineries HPCL used to process the crude oil were old and hence were not efficient. This lead to increased logistics cost.
Vision Fatigue: Continuous vision definitions led to confusion and vision fatigue. Conversation Fatigue: Continuous conversations led to loss of engagement on the part of employees and conversation fatigue. evaluating ALTERNATIVESUse of latest technology Latest technology in refineries will lead to better productivity. The technology will cost a large sum of money but then it will reduce the cost of production, which will be beneficial for both the company as well as the customers. Investment in renewable resources As the world is moving towards renewable sources of energy, HPCL should also invest in solar energy, wind energy, geothermal energy, etc in order to run its plants and reduce the cost of production. Purchase of cheaper but still high quality crude oilPurchasing cheap yet high quality crude oil will ensure less production cost.
Increased CSR activitiesThe CSR activities done by HPCL will help the company gain popularity in the general public and maybe increase the sales of its products. Recommended SolutionThe recommended solutions is to purchase cheaper yet high quality crude oil, new technology in all of its plants and increase CSR activities. Implementing these solutions will be very profitable for the company. The company can then think of decreasing the price of petrol and diesel so that more people buy their products. Contingency plan In case the above recommended solution doesn’t work, the company can think of exploring and investing in renewable sources of energy since it is the future.
The company will incur a higher cost than it would in the recommended plan, but it will benefit the company in the long run.