indian oil company limited
TRANSCRIPT
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INDIAN OIL CORPORATION LIMITED
Incorporated in 1959 as Indian Oil Company Limited, the oil marketingcompany merged with Indian Refineries Limited in 1964 to form Indian Oil
Corporation Limited (IOCL). As Indias largest commercial undertaking, IOCLwas engaged in the business of refining,transporting and marketing petroleum productsthroughout the country. From its inception, IOCLhad been a state-owned enterprise with themandate to build national oil security andcompetence in oil refining and marketing. In fiscal2002, it was ranked No. 191 and was the onlyIndian company in Fortune Global 500.IOCL had a divisional structure based on business
lines that reflected the individual companies before the merger. Each division
was headed by a director who reported to the chairman.
The marketing division was responsible for the sales and distribution ofvarious petroleum products to every corner of India IOCL had over 53 percent of the market share in petroleum products. The refineries divisionoperated seven of the countrys 18 refineries. The pipelinesdivision had beenentrusted with the design, engineering, construction and operations of thecountrys largest network of pipelines. The research and development (R&D)division was engaged in research on lubricants, refinery processes andpipeline transportation. The divisions had wide autonomy in business mattersbut were required to operate under broad policy guidelines spelled out by thegovernment.
Information Technology at IOCL
Electronic data processing (EDP) wasintroduced in IOCL in 1966 with punchedcards and unit record machines. These werereplaced in 1986 by personal computers(PCs). Computers had been traditionally
opposed by IOCL unions, who perceived themas replacements for workers. It was only in
Background
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1990, after PCs had become a common feature in the organization that theunions began to accept the mainframe computer system in the organization.
However, by that time, the technology had progressed, and IOCL decided in1992 to replace the mainframes with a distributed data processingenvironment.
In the first 20 years of computerization, the focus had been on financialsystems, payroll and sales statistics. With the introduction of PCs, severalinitiatives were launched to implement EDP in other aspects of work at IOCL.The first online transaction processing program was implemented in 1989. Adistributed digital control system for refinery process controls wasimplemented in 1993 and subsequently replaced by real-time operationscontrols in 1996. At the time, key functions in various IOCL divisions were
sustained by different legacy software systems developed over the pastseveral years. Similarly, the financial management system (FMS), thematerials management system (MMS), and the online maintenance andinspection system (OMNIS) were in operation in the refineries and pipelinesdivisions. There were other legacy systems for stock and sales accounting inthe marketing division and for payroll in all divisions. EDP at IOCL worked onminicomputer and PC-based platforms, and significant investments had beenmade in these basic building blocks. There were also local and wide areanetworks, but these operated on a limited scale with little standardization.Like any other large organization, IOCL generated, collated and stored a vastquantity of data, but the information was scattered among different legacy
systems, each designed to meet the specific needs of particulardivisions/functions/departments. These islands of information systemslacked commonality, consistency and communicability.
PROJECT MANTHAN
A thought process was initiated by top management in March 1996 fordeveloping and implementing an integrated information processing,transmitting and archiving system across the corporation. To initiate the
process of IT-based reengineering, workshops were conducted by thefunctional expertise resource group with about 300 representatives fromdifferent areas of the IOCL business.
The knowledge generated from these workshops provided the foundation forProject Manthan. The project was thus conceptualized as commoninformation platform across the organization with a view to ensuring thesurvival and growth of IOCL in the open market
The core group formulated the scope and objectives of the project, based onthe collective knowledge and experience of its members, a literature scan and
consultant presentations. The upgrade of hardware, use of a commonplatform, integration of all functional modules and open architecture was
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collectively perceived as a synergized system to meet IOCL businessrequirements. The expectation was that, on completion of the project, IOCL
would be able to compete with the best in India and abroad on equal terms.The cost-benefit equation was also seen in a positive light. Puri noted,That their annual distribution cost and expenditure on project services andmaterial account for Rs34 billion3 and Rs40 billion respectively; even a oneper cent reduction through optimization and information analysis would entaila substantial savings to IOCL. Initially they targeted Rs2.3 billion asannualized savings but they have revised the target as their expectationshave increased with successes in implementation. Until now their focus hasbeen on standardization; with the rollout of the system to the entirecorporation by 2004-2005, they will be a position to do a benchmarking of thesavings.
The Project Disclosure
In April 1997, Price Waterhouse Associates (now PwC) was assigned the taskof conceptualizing, designing and implementing an integrated informationprocessing system across IOCL in 29 months. However, the contractrestricted IOCLs financial commitment to the initial conception and designstage of the project.
In July 1998, PWC submitted the conceptual technology plan (CTP) andrecommended the following actions-
Implementation of suitable ERP software;Implementation of add-on software packages;Installation and commissioning of a robust communication network;Installation and commissioning of appropriate hardware; andTransition management.
The project gained momentum after approximately 70 people from variousfunctional units of all the divisions joined the core group to facilitate the
implementation of the ERP package and add-on software, along with thecommissioning of a communication network and hardware infrastructure.In October 1999, IOCL selected the internationally-reputed ERP package,SAP R/3. The system would be accessed company-wide over a hybrid widearea network. The optimal and efficient performance of the new centralizedapproach at IOCL called for a telecommunications network unparalleled in thehistory of corporate India. In 1996, not only was the telecommunicationssector controlled by the government, the reliability of connections andbandwidth adequacy was in doubt. The Manthan team, however, felt that amultitier communications strategy would provide nearly 100 per cent uptimewith adequate bandwidth. IOCL saw this as an opportunity to implement a
single integrated communication network for the entire organization,
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dissolving divisional boundaries by providing voice, video and dataconnectivity throughout the country.
As per normal policy, they try to have three modes of communication to anypoint of sale location. The terrestrial network forms the backbone and meetsthe requirements of applications that demand high bandwidth, but as it is notdependable, they provide VSAT and ISDN connectivity as backups. This isideally what they would like to have in the new situation, but their locations arelargely based in remote areas of the country, where the communicationinfrastructure is inadequate. During implementation, they found that theycould not generalize and that each location had to be looked at on a case-by-case basis, which resulted in variations from their three-tier communicationsetup.
Further, they faced many challenges related to the regulatory environment.For instance, installing VSAT at their aviation fuelling stations requiredapproval from a government body that represented several ministries; thisapproval was not always forthcoming.
The project was to be completed in fewer stages:
Manthan has been a unique project embarked upon for the first time in Indiaby any organization of comparable size and complexity. The project stipulateda quantum jump in technology for IOCL. Therefore, they, as they will as PwC,
4 had to face a number of unforeseen and multidimensional problems whilecompleting various stages. The methodology adopted by PwC in consultationwith the business managers and the IT group was also unique and novel forIOCL. Therefore, a number of issues had to be revisited and rediscoveredduring this stage. All these factors resulted in delays in the completion of theproject. 4PwA was renamed PricewaterCoopers (PwC) and, later in 2002, theIT consultancy services of PwC they were taken over by IBM Consulting.One such issue related to add-ons. The core team learned a great deal aboutthe organization over the course of the project that had not been as clearearlier, including the fact that add-ons they were going to be far more crucialthan initially envisaged.
conceptual
designdetailed design construction implementation.
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Adaptation of the new IT system
One of the biggest challenges to adopting the new IT system was the level ofcomputer proficiency in the organization. Of the nearly 9,500 employees inexecutive and supervisory roles, a large proportion had little experience withcomputers, let alone with advanced systems such as an ERP. It became clearto management that corporate-wide visibility for IT and the training of all itsemployees on IT systems was going to be a key factor in project success andthe use of IT for business growth.
Apart from launching IT-based training, in 1999-2000, IOCL provided personal
computers for home use to all 9,500 executives and supervisors as a meansto enhance overall computer literacy and skills. Also, as part of the overallManthan project vision; the number of PCs in the workplace was increased toapproximately 2.5 computers for every three supervisors/executives.
Going Live
On August 31, 2001, the R&D centre became the maiden go-live site.
According to Rao, Originally, 22 pilot sites were to go live simultaneously onSeptember 1, 2001, but considering their progress, this looked unlikely;meanwhile, the implementation had taken quite some time and the generalperception was, The Manthan group has beendoing something for so manymonths but nothing has come out. They realized that a quick win wasnecessary for both the core team and the organization. They needed todemonstrate to the organization that Manthan, as a concept, worked in realtime.
This is where the idea of a pilot out of a pilot emerged. The core team favoredthe R&D centre as the maiden site as it offered many advantages, e.g.,
transaction opportunities for most of the SAP modules and proximity to thehead office of IOCL and the Project Manthan team. Until the rollout in R&D,there were issues related to the morale of the core team.
There were no visible results and the team was in its own cocoon. Throughthe quick win at R&D, the Manthan team grew in confidence.With the experience gained at the R&D centre and at IIPM, the Manthan teamwas ready to roll out SAP at other major locations. A dozen locations wereshort-listed to go live on January 1, 2002. These units together representedthe entire spectrum of business operations in refineries, pipelines andmarketing.
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The Response Time Issue
The designed response time during the sizing of servers for the productionenvironment was 2,000 milliseconds. Since the maiden go-live, responsetimes had been as per the design requirements in general. During the firstweeks of March and April, however, the SAP R/3 system had slowed downconsiderably to the point that normal business transactions were disrupted.The response time of some of the application servers was over 10 seconds.The 10 seconds translated to eight to 10 minutes at the user end, due to acascading effect. They were flooded with calls from almost all their points ofsale complaining that the printing of invoices from the system was too slowand was resulting in queues of road tankers awaiting dispatch.
The Bijwasan terminal is a life line for Delhi. They supply petrol and diesel tonearly 85 per cent of the retail outlets in Delhi as well as to the internationalairport. Every day, around 350 truck tankers are dispatched from Bijwasan.They started facing problems during the first weeks of March and April. Innormal operations, the sales and dispatch for a single truck involve fiveprocesses, each taking two to 2.5 minutes. When the system slowed down,each process was taking nearly 25 minutes and resulted in long queues oftruck 6 SAP R/3 core technologies and its architecture is called Basis.
As the Indian petroleum market continued to undergo deregulation and anexcess refining capacity appeared for the first time, customers had theflexibility to source their needs from companies that offered the best service atthe least cost and time. One of the key business requirements from ProjectManthan had been its beneficial impact on the customer relationship.
Lengthy transaction processing delays (e.g. the generation of a sales invoice)could, however, trigger customer migration to other oil companies.
The response time issues had cropped up following the end of a month. Themonth-end period in IOCL involved consolidation of all past transactions for
monthly reporting purposes to aid management decision-making. When theresponse time issue first came up, the Basis team responded by deferringprocessing of reporting applications to free up resources for businesstransactions.
This action had improved response time to an extent. Puri learned from histeam, however, that other factors could have contributed to the poor responsetimes:
Hardware configuration and installation,Database design and installation,Loads and communication bandwidth limitations.
Several alternative courses of action appeared appropriate.
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One option was to schedule all reporting and batch jobs after hourswhen the transaction load was light.
Using the SAP message service whenever response time increased,by requesting them to defer their reporting jobs in favor of businesstransaction processing.Another alternative was to remove the reporting load from the databaseserver and shift it to a business warehouse server. Although this wouldfree substantial resources for transaction processes, the reportingserver would require a substantial investment of time and money.
The Dilemma
Given the three-tiered ERP architecture, itwould be challenging to identify which factorse.g., the SAP application, the database server,the way in which the database has beenimplemented, the communications bandwidthconstraints were bottlenecks. Puri knew,though, that with more sites going live andincreasing end-user expectations, the efficientperformance of the technological system wascrucial.
Puri also understood that he did not have direct control over several causalfactors, such as the adequate allocation of bandwidth by the government-runtelecommunications provider. Such constraints resulted in several questionsfor Puri with respect to the future course of Project Manthan. The primarydecision he needed to make was whether or not to proceed as planned withimplementation at the remaining sites. If he were to recommend continuedimplementation, he would have to keep in mind that response times couldworsen due to the additional load of the new sites. If he were to recommendstalling the implementation, he would have to account for the implications ofsuch a decision as well as come up with a suitable action plan to bring the
project back on track.
Puri began to consider the factors that pointed to continuing with theimplementation while simultaneously trying to resolve the response timeissues. The implementation exercise had gained considerable momentum,and the core team was displaying great enthusiasm in the rollout to theremaining sites. Puri knew that in this environment, any diversion wouldimpede the implementation and delay project completion. Additionally, Purihad been feeling pressure from top management to complete the project,which was already in its eighth year.
With the added load of new sites going live, the response time problem couldworsen. Any further delays in processing transactions could result in poor
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customer relations and compromise customer service, possibly triggeringcustomer migration to competitors. There was also the risk of antagonizing a
fresh set of end-users at the sites where implementation had begun after theresponse time issues had arisen. Puri felt that the case for not proceeding andsuspending further implementation until the response time issues had beenresolved also had merit. The response time problems, which had cropped upin the initial weeks of the previous two months, had been unexpected and hadtaken the team by surprise. There was uncertainty regarding response times,and it appeared prudent to halt further implementation. He was, however,equally aware that management would expect a plan to regain the time lost inresolving the issue.
The sudden occurrence of the response time problem before all 99 Phase I
sites had gone live pointed to the possibility that the design team may havegiven the unique business process requirements of IOCL underestimatedtechnological requirements such as server sizing and bandwidth. Puri felt thatan in-depth systems study was needed in order to arrive at the optimal systemconfiguration needed to support the full load of about 6,000 users in over 500sites and to rectify the ongoing response time problem. Here, too, Puri wasunsure about which vendors to call on. Project Manthan involved partnershipswith several vendors as well as licensing agreements with governmentagencies.
The Future Course
In a related but independent decision, Puri had to make recommendationsabout the job profile of the IS department and its personnel at variouslocations. He was aware that with the adoption of a centralized architecture,the roles and responsibilities of the IS department and its personnel at allunits and sites would change. Earlier, they had developed and maintainedcustomized standalone legacy systems in decentralized environments, butthese systems were now being replaced by the centralized SAP R/3 system.Puri was confident that IS personnel from the various locations could be
retrained in the new technology so that IOCL would have the capabilities toroll the system out to the remaining sites under Phase II without the aid ofexternal consultants while supporting end-users and maintaining the entiresystem centrally. He was, however, uncertain about how the other divisionswould respond to giving up their IS personnel. He was also unsure about howIS personnel at the various divisions would respond to their changing rolesand responsibilities and to new management expectations. As Puri ponderedthe different issues confronting Project Manthan, he realized that poorresponse time was the biggest issue. Any successful resolution had toaddress not only the 66 sites currently on SAP R/3 but also had to ensure thatevents such as the ones they had faced did not occur when the load from the
remaining 500+ sites was on the new system. Meanwhile, Puri had to decidehow best to proceed with the rest of the implementation.
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There were a lot of difficulties regarding the remote areas and
government approval.
A number of issues had to be revisited and rediscovered during this
stage. All these factors resulted in
delays in the completion of the project
The selection of an add-ons vendor
was a long process as integration of
supply chain management
One of the biggest challenges to
adopting the new IT system was the
level of computer proficiency in the
organization
The Response Time Issue: The poor response time had larger
organizational implications
With more sites going live and increasing end-user expectations, the
efficient performance of the technological system was crucial
There was uncertainty regarding response times, and it appeared
prudent to halt further implementation
Any further delays in processing transactions could result in poor
customer relations and compromise customer service
Problem Identification
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hat strategic measures should Indian Oil Corporation take in order tobecome a major, diversified, transnational, integrated energycompany, with national leadership and a strong environmental
conscience, playing a national role in oil security and public distribution andsustain customer satisfaction, improving margins by driving down costs andoptimizing operations to improve bottom-line profitability?
Main issue
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Narrow SWOT Analysis:Strengths:
1. As Indias largest commercial undertaking, IOCL was engaged in the
business of refining, transporting and marketing petroleum products
throughout the country.
Incorporated in 1959 as Indian Oil Company Limited, the oil marketingcompany merged with Indian Refineries Limited in 1964 to form Indian Oil
Corporation Limited (IOCL). As Indias largest commercial undertaking, IOCL
was engaged in the business of refining, transporting and marketing
petroleum products throughout the country. From its inception, IOCL had
been a state-owned enterprise with the mandate to build national oil security
and competence in oil refining and marketing. In fiscal 2002, it was ranked
No. 191 - and was the only Indian company - in Fortune Global 500.
IOCL had a divisional structure based on business lines that reflected the
individual companies before the merger. Each division was headed by a
director who reported to the chairman. The marketing division was
responsible for the sales and distribution of various petroleum products to
every corner of India - IOCL had over 53 per cent of the market share in
petroleum products. The refineries division operated seven of the countrys 18
refineries. The pipelines division had been entrusted with the design,
engineering, construction and operations of the countrys largest network of
pipelines. The research and development (R&D) division was engaged in
research on lubricants, refinery processes and pipeline transportation. The
divisions had wide autonomy in business matters but were required to operate
under broad policy guidelines spelled out by the government.
2. Information Technology at IOCL was very up to date and up to the
mark as well.
Electronic data processing (EDP) was introduced in IOCL in 1966 with
punched cards and unit record machines. These were replaced in 1986 by
personal computers (PCs). Computers had been traditionally opposed by
IOCL unions, who perceived them as replacements for workers. It was only in1990, after PCs had become a common feature in the organization that the
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unions began to accept the mainframe computer system in the organization.
However, by that time, the technology had progressed, and IOCL decided in
1992 to replace the mainframes with a distributed data processingenvironment. By the mid-90s, the business processes for identical tasks
differed across divisions and, in many instances, even within the different
locations of a division. This lack of standardization was leading to suboptimal
use of organizational resources. Software developed and procured in the
1980s was still in use in 1996, and it was estimated that the overall
technology gap was of the order of five years, with an even greater gap in
networking and communications technology. Apart from the technological
gap, the IT organization at IOCL also faced the critical challenge of Y2K and
its attendant issues.
3. Various up gradation of the system was strength for the company to
run the project successfully.
In the first 20 years of computerization, the focus had been on financial
systems, payroll and sales statistics. With the introduction of PCs, several
initiatives were launched to implement EDP in other aspects of work at IOCL.
The first online transaction processing program was implemented in 1989. A
distributed digital control system for refinery process controls wasimplemented in 1993 and subsequently replaced by real-time operations
controls in 1996. At the time, key functions in various IOCL divisions were
sustained by different legacy software systems developed over the past
several years, (e.g. the marketing division had the terminal documentation
module (TDM) to capture data at point-of-sale units such as bulk storage
terminals, the plant documentation module (PDM) for operations at liquefied
petroleum gas (LPG) bottling plants, and the IndAir system for aviation fuel
stations).
4. PROJECT MANTHANs cost-benefit equation was also seen in a
positive light.
A thought process was initiated by top management in March 1996 for
developing and implementing an integrated information processing,
transmitting and archiving system across the corporation. To initiate the
process of IT-based reengineering, workshops were conducted by the
functional expertise resource group with about 300 representatives from
different areas of the IOCL business. The knowledge generated from these
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workshops provided the foundation for Project Manthan. The project was thus
conceptualized as a common information platform across the organization
with a view to ensuring the survival and growth of IOCL in the open marketThe cost-benefit equation was also seen in a positive light. Puri noted, Our
annual distribution cost and expenditure on project services and material
account for Rs34 billion3 and Rs40 billion respectively; even a one per cent
reduction through optimization and information analysis would entail a
substantial savings to IOCL.
Weaknesses:
1. There were a lot of difficulties regarding the remote areas and
government approval.
Sheela Ranjhan, deputy manager of information systems (IS), spoke about
the practical difficulties involved: As per normal policy, we try to have three
modes of communication to any point of sale location. The terrestrial network
forms the backbone and meets the requirements of applications that demand
high bandwidth, but as it is not dependable, we provide VSAT and ISDN
connectivity as backups. This is ideally what we would like to have in the newsituation, but our locations are largely based in remote areas of the country,
where the communication infrastructure is inadequate. During implementation,
we found that we could not generalize and that each location had to be looked
at on a case-by-case basis, which resulted in variations from our three-tier
communication setup. Further, we faced many challenges related to the
regulatory environment. For instance, installing VSAT at our aviation fuelling
stations required approval from a government body that represented several
ministries; this approval was not always forthcoming.
2. A number of issues had to be revisited and rediscovered during this
stage. All these factors resulted in delays in completion of the project.
The project was to be completed in four stages: (1) conceptual design, (2)
detailed design, (3) construction, and (4) implementation. As the project
evolved, Puri reflected on its progress: Manthan has been a unique project
embarked upon for the first time in India by any organization of comparable
size and complexity. The project stipulated a quantum jump in technology for
IOCL. Therefore, we, as well as PwC, had to face a number of unforeseen
and multidimensional problems while completing various stages. Themethodology adopted by PwC in consultation with the business managers
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and the IT group was also unique and novel for IOCL. Therefore, a number of
issues had to be revisited and rediscovered during this stage. All these factors
resulted in delays in the completion of the project.
3. The selection of an add-ons vendor was a long process as integration
of supply chain management
One such issue related to add-ons. The core team learned a great deal about
the organization over the course of the project that had not been as clear
earlier, including the fact that add-ons were going to be far more crucial than
initially envisaged. As A.C. Mishra, chief manager of IS for the add-ons group,
observed, IOCL is essentially a supply chain organization. In the deregulated
scenario, a package or tool for supply chain management is a must as
decision-making departmentally has led to sub-optimal operation in the past.
With add-ons, IOCL hopes to optimize its entire supply chain, from crude
procurement to finished product distribution. We went in for the add-ons as
the real time needs of IOCLs core business functions were not adequately
addressed by ERP software alone. The add-ons were essentially bolt-ons to
SAP R/3. The selection of an add-ons vendor was a long process as
integration of supply chain management was a new concept in India in 1998
and there was no benchmarking data available for the country. In October,
2002, Tata Honeywell was awarded the work. As a result, we embarked onthe prototype development of some select applications, to prove their utility in
the Indian environment and to build confidence amongst end-users. The
project team had taken up the implementation of a few packages such as the
laboratory information management system, crude scheduling packages for
the crude pipelines, demand forecasting for a few selected products in
representative areas, and at various end-user locations.
4. One of the biggest challenges to adopting the new IT system was thelevel of computer proficiency in the organization.
One of the biggest challenges to adopting the new IT system was the level of
computer proficiency in the organization. Of the nearly 9,500 employees in
executive and supervisory roles, a large proportion had little experience with
computers, let alone with advanced systems such as an ERP. It became clear
to management that corporate-wide visibility for IT and the training of all its
employees on IT systems was going to be a key factor in project success and
the use of IT for business growth. Apart from launching IT-based training, in
1999-2000, IOCL provided personal computers for home use to all 9,500
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executives and supervisors as a means to enhance overall computer literacy
and skills. Also, as part of the overall Manthan project vision, the number of
PCs in the workplace was increased to approximately 2.5 computers for everythree supervisors/executives.
Opportunities:
1. Project Manthans cost-benefit equation was also seen in a positive
light.
The core group formulated the scope and objectives of the project, based on
the collective knowledge and experience of its members, a literature scan and
consultant presentations. The upgrade of hardware, use of a common
platform, integration of all functional modules and open architecture was
collectively perceived as a synergized system to meet IOCL business
requirements. The expectation was that, on completion of the project, IOCL
would be able to compete with the best in India and abroad on equal terms.
The cost-benefit equation was also seen in a positive light. Puri noted, our
annual distribution cost and expenditure on project services and material
account for Rs34 billion3 and Rs40 billion respectively.
2. Manthans vision of becoming the major, diversified, transnational,
integrated energy company was a huge opportunity
Our vision is to become a major, diversified, transnational, integrated energy
company, with national leadership and a strong environmental conscience,
playing a national role in oil security and public distribution. Pre-deregulation,we focused on market share. Post-deregulation, our strategy is to maintain
our leadership by meeting customer expectations at the lowest cost to both
IOCL and to our customers. Further, we have focused on increasing our
refinery margins and capitalizing on opportunities thrown up by deregulation.
On August 31, 2001, the R&D centre became the maiden go-live site.
According to Rao, Originally, 22 pilot sites were to go live simultaneously on
September 1, 2001, but considering our progress, this looked unlikely;
meanwhile, the implementation had taken quite some time and the general
perception was, The Manthan group has beendoing something for so many
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months but nothing has come out.We realized that a quick win was
necessary for both the core team and the organization.
3. There was an opportunity to implement a single integrated
communication network for the entire organization
The project gained momentum after approximately 70 people from various
functional units of all the divisions joined the core group to facilitate the
implementation of the ERP package and add-on software, along with the
commissioning of a communication network and hardware infrastructure. In
October 1999, IOCL selected the internationally-reputed ERP package, SAP
R/3. The system would be accessed company-wide over a hybrid wide area
network. A.M. Rao, DGM (IS) noted the difficulty in selling this centralized
approach: Trying to sell the concept of a centralized system that would
connect the entire country was difficult when we were not sure that a
telephone call to the other end of the city would occur trouble free. The
optimal and efficient performance of the new centralized approach at IOCL
called for a telecommunications network unparalleled in the history of
corporate India. In 1996, not only was the telecommunications sector
controlled by the government, the reliability of connections and bandwidth
adequacy was in doubt.
4. If everything goes well, they hope to move toward a paperless office
environment and an optimized supply chain
Buoyed by such successes, Puri observed, In the immediate future, if
everything goes well, we hope to move toward a paperless office environment
and an optimized supply chain. The data generated at the central site from all
locations of IOCL will be the backbone for customized portals that will provideready day-to-day information on key performance indicators to senior
management while facilitating the launching of data warehousing and
customer relationship management.
We believe that our Manthan experience can be leveraged by floating a new
company to offer consultancy services to our subsidiaries and joint venture
partners on training and implementation related to SAP R/3, networking and
hardware selection, while also becoming a beta testing site for major software
vendors.
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Threats:
1. The Response Time Issue: The poor response time had larger
organizational implications
The poor response time had larger organizational implications. While the
project was backed by top management and positioned as an IT-based re-
engineering exercise that would align with the business priorities of IOCL,
end-users facing slow response times had started to question whether theirrequirements (such as time required to process a transaction) were being
fulfilled. For end-users with lower computer skills, slow response times
compounded the challenges they faced in adjusting to the new way of
transacting business. These users were now forced to navigate and utilize
computer screens that they considered complex and saw as taking longer to
complete business transactions than their earlier manual processes. Even to
end-users who had been proficient in computer use and accustomed to
customized stand-alone software, the response time delays proved to be
disruptive and a source of frustration. The project and change managers, whohad championed the new system at various units, saw the response time
delays as a source of embarrassment.
2. With more sites going live and increasing end-user expectations, the
efficient performance of the technological system was crucial.
Puri realized there were time and resource costs associated with sorting out
the response time problem. Given the three-tiered ERP architecture, it would
be challenging to identify which factors e.g., the SAP application, the
database server, the way in which the database has been implemented, the
communications bandwidth constraints were bottlenecks. Puri knew,
though, that with more sites going live and increasing end-user expectations,
the efficient performance of the technological system was crucial. Puri also
understood that he did not have direct control over several causal factors,
such as the adequate allocation of bandwidth by the government-run
telecommunications provider. Such constraints resulted in several questions
for Puri with respect to the future course of Project Manthan.
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3. There was uncertainty regarding response times and it appeared
prudent to halt further implementation
The primary decision he needed to make was whether or not to proceed as
planned with implementation at the remaining sites. If he were to recommend
continued implementation, he would have to keep in mind that response times
could worsen due to the additional load of the new sites. If he were to
recommend stalling the implementation, he would have to account for the
implications of such a decision as well as come up with a suitable action plan
to bring the project back on track. Puri also had to come up with a strategy to
address the growing discontent of endusers and management related to the
poor response times.
In doing so, he knew that the suitability of a centralized IT architecture at
Indian Oil would be revisited. Puri also had to decide which of the existing
group of vendors should be brought in to help with the problem without
compromising the momentum of the project.
4. Any further delays in processing transactions could result in poor
customer relations and compromise customer service
The downsides to continuing implementation were also evident. With the
added load of new sites going live, the response time problem could worsen.
Any further delays in processing transactions could result in poor customer
relations and compromise customer service, possibly triggering customer
migration to competitors. There was also the risk of antagonizing a fresh set
of end-users at the sites where implementation had begun after the response
time issues had arisen.
Puri felt that the case for not proceeding and suspending further
implementation until the response time issues had been resolved also had
merit. The response time problems, which had cropped up in the initial weeks
of the previous two months, had been unexpected and had taken the team by
surprise. There was uncertainty regarding response times, and it appeared
prudent to halt further implementation. This was a threat for this company
which immediately needed to be resolved.
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Functional Area Analysis
Porters five forces model
Porter's 5 forces analysis is a framework for industry analysis and businessstrategy development. It uses concepts developed in Industrial Organizationeconomics to derive five forces that determine the competitive intensity andtherefore attractiveness of a market. Porter referred to these forces as themicroenvironment, to contrast it with the more general term macroenvironment.
The Bargain ing Pow er of Buyers: HIGH
In general, when buyer power is High, the relationship to the producingindustry is near to what an economist terms a monophony. Thus thebargaining power of buyers is one of the most volatile factors in the portersfive forces model.
Bargaining power of customers
(HIGH)
Competitive rivalry within an industry
( LOW)
Threat of new entrants
(MODERATE)
Threat of substitute products
(LOW)
Bargaining power of suppliers(HIGH)
Marketing Analysis
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In the case of Indian Oil Corporation Limited the Bargaining Power ofBuyers within industry was founded as moderatebecause of the
following factors which jointly made up this part of the porters fiveforces model:
Buyer Concentration:In the growing markets Water purifier manufacturersenter with its goal to attain the potential for high profits induce new firms toenter and incumbent firms to increase production. A point is reached wherethe industry becomes crowded with competitors, and demand cannot supportthe new entrants and the resulting increased supply.
The industry may become crowded if its growth rate slows and the marketbecomes saturated, creating a situation of excess capacity with too many
goods chasing too few buyers. A shakeout ensues, with intense competition,price wars, and company failures. This factor is vital for any industry to boom.This has established a huge customer base. This buyer concentration is veryhigh. This trend shows theHighbuyers power on the manufacturercompanies.
Indian Oil Corporation Limited might face difficulty regarding this buyerpower but it can handle it as the company is operating in this industryfor a long time. But the company may need to keep on investing onproduct innovation and customers preference search.
Switching costs:As customers from different countries has multiple optionsto choose from the present products of same quality, price and featuresoffered by different companies, but in this case the switching cost is notavailable.
Bargaining Leverage:Competitors had very close position and they cangraft market. Indian Oil Corporation Limited is operating in manufactureoriented business; it offers water purification plant and provides fresh water,
so there is no room for bargaining in their business operations. If barriers toentry are high, then there are fewer competitors in the industry andconsequently, profitability is higher. Ideas and knowledge that providecompetitive advantages are treated as private property when patented, andprevents others from using the knowledge and thus creates a barrier to entry.Since there are no adjustment or process to patent in this industry and soprofitability is still high.
Indian Oil Corporation Limited had huge number of buyers. Butcompetitors had very close position and they can graft market if IndianOil Corporation Limited made any mistake.
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The Bargain ing Power of Supp l ier: High
Suppliers, if powerful, can exert an influence on the producing industry, such
as selling raw materials at a high price to capture some of the industry'sprofits. The following tables outline some factors that determine supplierpower.
In the case of Indian Oil Corporation Limited Bargaining Power ofSupplier within industry was founded as moderatebecause of thefollowing factors which jointly made up this part of the porters fiveforces model:
Suppliers Concentration:As with any commodity suppliers, the bargainingpower of suppliers with would be exerted by either threatening to raise the
price of the raw materials needed or by a threat of reduction in the quality orquantity of the raw materials. The suppliers of the raw materials needed in theproduction process of producing Indian Oil Corporation Limited products weremostly supplied by individual specific producers. The bargaining power ofsuppliers seems negligible due to the small purchasing volume eachindividual had to offer the specialty coffee industry. However, as the industryhas grown it is found from the case that many of the growers who sell toIndian Oil Corporation Limited may unit to increase the price of the rawmaterials. This initiative would be designed in expectation to ensure that theraw materials the specific manufacturers provide would be compensated fairlyfor their raw materials, which is the basic raw material for Indian OilCorporation Limited products.
Indian Oil Corporation Limited might face difficulty as they need to buysome of their raw materials from the local suppliers andHighconcentration means Indian Oil Corporation Limited has option tochoose from abroad suppliers.
Dependency on suppliers:Technology based firms are fully dependent ontheir customers as quality of the products produced greatly depend on thesuppliers ability to supply quality raw materials and at desired amount. So thedependence isHigh.
Indian Oil Corporation Limited has a great opportunity which mightdestroy if not supported well by the suppliers by providing quality rawmaterials at right amount and at right time.
Credible threat of forward integration:Suppliers cannot do forwardintegration. This initiative by Indian Oil Corporation Limited supplier woulddisrupt the positive externality through increasing their ability to exertbargaining power over their buyers. This action to increase the bargainingpower of the raw materials which the firms provide to Indian Oil Corporation
Limited would be a constant threat to look out for.
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Water Purification industry manufacturers like Indian Oil Corporation Limitedgenerally requires high infrastructure and industry are highly dependent on
usage of natural resources such as labor and land, thereby Indian OilCorporation Limited is highly dependent on its suppliers. Hence, the existingsellers cannot assume any eminence as would be the case in a serviceoriented company. Since they are a manufacture-oriented organization, theyare dependent on sellers to buy their product but due to the bulk purchasingIndian Oil Corporation Limited has managed to keep the price demanded bythe suppliers low. This threat is atlowrisk.
Indian Oil Corporation Limited may not lose their brand image andmarket share. Its revenue may reduce significantly.
Threat of Subst i tute Produc ts: NIL
In the case of Indian Oil Corporation Limited Threat of SubstituteProducts were founded as Negligible because of the following factorswhich jointly made up this part of the porters five forces model:
Entry Barrier:Entry barriers are not that high in the country for the newentrants. So it is moderately high.
Switching costs:Substituting product in the country is zero since water does
not have alternative, because the people are very much aware of acquiringfresh water and are also well informed about the technologies available.
Compet i t ive Rivalry with in the Industry : Very High
Economists measure rivalry by indicators of industry concentration. TheConcentration Ratio (CR) is one such measure. A high concentration ratioindicates that a high concentration of market share is held by the largest firms- the industry is concentrated and vice-versa.
In the case of Indian Oil Corporation Limited the Competitive Rivalrywithin industry was founded as Highbecause of the following factors
which jointly made up this part of the porters five forces model:
A larger number of firms:The industry shows a great future with potentialgrowth opportunity. This positive signs of the industry has attracted and isattracting companies from all over the world. Firms are trying their best toattract customers and to steal customers. They use price and other possibleways to do this. That is why this factor is High.
The huge number of customers present in the India, Vietnam and
France market show intensive competition for Indian Oil CorporationLimited and its making the firms job tough.
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High fixed costs:Industry needs huge infrastructure and needs investment
at the initial level. And to become competitive a company has to invest in theinfrastructure and a country where the people like to hang around in the shopsso the sizes should be big. For covering the huge fixed cost the firms want tograb the biggest portion of a market, which boosts up the rivalry among thecompetitors. Thats why we have found the fixed cost very High.
As Indian Oil Corporation Limited and other firms have alreadyinvested in the market and has established its plants, it has becomevery risky for these firms to cover the huge fixed cost, thus boasting therivalry. It is not desired for any company.
High exit barriers:The firms operating have to bear huge fixed cost intechnology, infrastructure and building distribution network which arededicated to that industry. So we have found the barriers of exit barrier High.
Indian Oil Corporation Limited has invested a lot in different products inthe coffee industry and is planning to invest more as it has expandingoutside the country. So the exit barrier for the company is high.
Industry Competitive Structure: The competitive structure of an industry to
the number and size distribution of companies in it, something that strategicmanagers determine at the beginning of an industry analysis. It is High.
Indian Oil Corporation Limited has been fighting well in the rural arealike monopoly but in the metropolitan cities the competition was verytight. So the industry competitive structure is very high.
Product Differentiation:Indian Oil Corporation Limited manufacturers usealmost the similar kind of technologies in their production system whichmeans the features and usage of their produced products are very much
similar; means the product differentiation is low.
This similarity in usage and features are threats for Indian OilCorporation Limited as customers may buy products from the newentrants or from other companies.
Industry Demand:The demand for fresh water is simple enormous all overthe world. This demand for high end products is Highin the country as thebusiness sector is expanding and the government has re-designed the wholesetup of its administration and is encouraging to expand even in the ruralarea.
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This demand is encouraging Indian Oil Corporation Limited expansionsplan in the country as well the demand also increasing the rivalry
among Indian Oil Corporation Limited and its competitors. And as weknow rivalry can take nasty form, Indian Oil Corporation Limited wouldface great difficulty.
Threat of New Entrants: High
In theory, any firm should be able to enter and exit a market, and if free entryand exit exists, then profits always should be nominal. In reality, however,industries possess characteristics that protect the high profit levels of firms inthe market and inhibit additional rivals from entering the market. These arethreat of new entrants.
In the case of Indian Oil Corporation Limited the Chances of newentrants were founded as Highbecause of the following factors whichjointly made up this part of the porters five forces model:
Government Policy & Rules:Government has not maintained a very rigidenvironment in terms of new investment in the industrial sector. Investmentsfrom local and international firms are very welcoming in terms of gettingfinancial support and there is not that much information in the case about thegovernment help. All these elements present in the external environmentmade it moderately favorable.
This moderately favorable government policy and rules are a threat forIndian Oil Corporation Limited as the policies and rules are not verylucrative for a firm which is planning to enter. So that is a threat forIndian Oil Corporation Limited.
Customer switching costs:The product line of Indian Oil CorporationLimited is not greatly differentiated, as it varies with degrees of quality, taste,preference, product outlook (packaging), and finally consumer acceptance.The leverage gain from not having a high degree differentiation made withinthe products of the entire coffee manufacturers in the industry enables the
established firms to earn economy of scale and have an efficient productionprocess, this in turn enables the coffee manufacturers to maintain efficientproduction facilities, along with low cost of production which automatically actas barriers to entry. So its easy for a customer to switch one firm to anotherfirm. That is why customer switching cost is found Low.
This threat of customer switching cost is the moderately low threat forIndian Oil Corporation Limited.
Patents and proprietary knowledge:There is not enough information in thecase about Law and order system so we can say that copy cats are very
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possible in the country which shows the patents and proprietary knowledge isnot highlyrestricted.
Patents and proprietary knowledge security is not very high in thecountry which is not a benefit for both Indian Oil Corporation Limitedand other competitors in the market.
Absolute Cost Advantages:Market provides the opportunity of first moveradvantage which means the firm who enters in the market at the beginningperiod of a particular industry that firm would get the cost advantage overother. From a strategic perspective, barriers can be created or exploited toenhance a firm's competitive advantage. So, absolute cost advantage isModeratelyLow.
Indian Oil Corporation Limited is not having this cost advantage as ithad entered in the country with lots of product varieties which hadimpact on the local peoples consumption as it had entered in themarket after there were some competitors already present.
Asset specificity inhibits entry into an industry:Some industry usesassets like technologies or raw materials which are very much specific to theindustry. Means no other modification of that technology or raw materialsused in the production process is possible to produce any other product or to
use in any other industry. That is why we found asset specificity very High.
As the asset specificity is high in the market this means Indian OilCorporation Limited doesnt have the opportunity to get assetadvantage.
Possibility of merger and joint venture:It is seen previously that not onlypresent rivals that pose a threat to firms in an industry; the possibility that newfirms or a merger along with joint venture of two small firms may enter theindustry also affects competition, through competitive pricing strategy. Newentrants bring a desire to gain market share and often have significantresources. Their presence may force prices down and pressure on profits.Analyzing the threat of new entrants involves examining the barriers to entryand the expected reactions of existing firms to a new competitor. Thecompanies in industry has not restricted from merger and joint venture. So theentry of FDI is not quite restricted which means the FDIs possibility is high.
This possibility of merger and joint venture is a high threat for Indian OilCorporation Limited as new entrants can easily grave some marketshare.
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Country r isk analysis:
India comprises the bulk of the Indian subcontinent and lies atop theminor Indian tectonic plate, which in turn belongs to the Indo-Australian Plate.
India's defining geological processes commenced 75 million years ago when
the Indian subcontinent, then part of the southern supercontinentGodwin,
began a north-eastward drift across the then-unformed Indian Ocean that
lasted fifty million years.
The subcontinent's subsequent collision with, and subduction under,
the Eurasian Plate bore aloft the planet's highest mountains, the Himalayas.
They abut India in thenorth and thenorth-east.In the former seabed
immediately south of the emerging Himalayas, plate movement created a
vasttrough that has gradually filled with river-borne sediment; it now forms
theIndo-Gangetic Plain.To the west lies the Thar Desert, which is cut off by
the Aravalli Range.
The original Indian plate survives as peninsular India, which is the oldest and
geologically most stable part of India; it extends as far north as the Satpura
and Vindhya ranges in central India. These parallel chains run from theArabian Sea coast in Gujarat in the west to the coal-rich Chota Nagpur
Plateauin Jharkhand in the east. To the south, the remaining peninsular
landmass, the Deccan Plateau, is flanked on the west and east by coastal
ranges known as the Western and Eastern Ghats; the plateau contains the
nation's oldest rock formations, some of them over one billion years old.
Constituted in such fashion
The San people were the first settlers; the Khoikhoi and Bantu-speaking tribes
followed. The Dutch East India Company landed the first European settlers on
the Cape of Good Hope in 1652, launching a colony that by the end of the
18th century numbered only about 15,000. Known as Boers or Afrikaners, and
speaking a Dutch dialect known as Afrikaans, the settlers as early as 1795
tried to establish an independent republic.
After occupying the Cape Colony in that year, Britain took permanent
possession in 1815 at the end of the Napoleonic Wars, bringing in 5,000
settlers. Anglicization of government and the freeing of slaves in 1833 drove
about 12,000 Afrikaners to make the great trek north and east into African
tribal territory, where they established the republics of the Transvaal and theOrange Free State.
http://en.wikipedia.org/wiki/Gondwanahttp://en.wikipedia.org/wiki/North_Indiahttp://en.wikipedia.org/wiki/Northeast_Indiahttp://en.wikipedia.org/wiki/Trough_(geology)http://en.wikipedia.org/wiki/Indo-Gangetic_Plainhttp://en.wikipedia.org/wiki/Indo-Gangetic_Plainhttp://en.wikipedia.org/wiki/Trough_(geology)http://en.wikipedia.org/wiki/Northeast_Indiahttp://en.wikipedia.org/wiki/North_Indiahttp://en.wikipedia.org/wiki/Gondwana -
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The discovery of diamonds in 1867 and gold nine years later brought an influx
of outlanders into the republics andspurred Cape Colony prime minister
Cecil Rhodes to plot annexation. Rhodes's scheme of sparking an outlanderrebellion, to which an armed party under Leander Starr Jameson would ride to
the rescue, misfired in 1895, forcing Rhodes to resign. What British
expansionists called the inevitable war with the Boers broke out on Oct. 11,
1899. The defeat of the Boers in 1902 led in 1910 to the Union of India,
composed of four provinces, the two former republics, and the old Cape and
Natal colonies. Louis Botha, a Boer, became the first prime minister.
Organized political activity among Africans started with the establishment of
the African National Congress in 1912
The dependency on foreign agencies for funding was extremely high in India.
The earlier record of foreign manufacturers in India had been poor with little
success. The lack of infrastructure and resources creates many new
challenges for Indian Oil Corporation.
Exchange risk usually affects businesses that export and/or import, but it can
also affect investors making international investments. For example, if money
must be converted to another currency to make a certain investment, then any
changes in the currency exchange rate will cause that investment's value to
either decrease or increase when the investment is sold and converted back
into the original currency.
Indian Oil Corporation Environmental is a
Canadian based company that wants tooperate in Indian market
So it is obvious that Indian OilCorporation would need to transfermoney to India to give dividend to itsshareholders.
As India and most of the Asian countries have well bilateral relationship webelieve the transfer of money would not face any kinds of restriction from
the Indian government, nether the exchange rate between these twocountries fluctuates that much which could be a matter of worry.
Exchange Transfer Risk
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Indias foreign exchange reserves are estimated at $21.7 billion in 2008
and fall to $19.6 billion in 2009. The relatively low level of foreignexchange reserves could limit the governments ability to intervene in theevent of a run on the dong, increasing the risk of a currency crisis.
It is now well understood that social unrest
is positively parallel to the poverty.
Assisting individuals, households and
communities to elevate living standard
above the poverty level will harmonize
global economy and strengthen the social
security. So, Social risk is available there
related to this acquisition.
The market where Indian Oil Corporation was planning to serve was directlyconnected to the general public, more specifically the society. Asian societyhas been very well coming and very moderate in nature.
Indian Oil Corporation need to be very careful about the basic believesof the society while they introduce any new product mix.
Indian Oil Corporation should be careful about this and do business bynot violating the social values and norms.
However we suggest Indian Oil Corporation should look for opportunityto introduce products and events focused to the norms of the Asiansociety.
Social Risk
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The shape of Indias political environment is
not expected to undergo radical change.
The president, Thabo Mbeki, has fully
consolidated his power base within the
ruling African National Congress (ANC) and
is expected to face little or no opposition
from within the party ranks. The ANC will
make further political gains in 2005-06 and
the tripartite alliance should remain intact.
Economic policy over the forecast period will continue to focus on increasing
both economic growth and investment in order to create employment. The
history of India is one of the grand epics of world history and can be best
described in the words of India's first Prime Minister Jawaharlal Nehru as "abundle of contradictions held together by strong but invisible threads". Indian
history can be characterized as a work in progress, a continuous process of
reinvention that can eventually prove elusive for those seeking to grasp its
essential character.
Political risk in Asian market for business firms is really low, means thegovernment is very welcoming to investment.
But the firms need to follow the Asian countries laws strictly and need topass all the regulatory checks Asian countries governments have.
Beside this a firms need to have good relation with the high governmentofficials for advantages and opportunities.
India benefits from its stable political environment. This lessens the risk ofpolitical instability leading to changes in policy that might have a negativeimpact on the business operating investment.
political Risk
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Technology enables key processes that a company uses to develop, deliver,
and manage its products, services, and support operations. Understanding
the role that technology plays in enabling core business operations
establishes the framework for understanding where relevant technology risks
lie.
By understanding the role that technology plays in supporting various
business functions, company management is in a better position to determinethe relative importance of these functions and prioritize the systems,
applications, and data involved. Technology risks are present throughout the
company and must be addressed as a whole.
Technological risk in Asian Countries is at a time a high risk factor and ahigh beneficiary factor for the companies of the water purification industry.
On one hand the easy access to technology made it possible for the waterpurification industry to go for new inventions to provide high qualityproducts.
But on the other hand the technological advancement made it possible foranyone to make the same water purification available under differentcompany. So Indian Oil Corporation needs to be very careful in thisaspect.
Technological Risk
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Under this risk factor we get risk associated
to do any business or any activity or
government official work, labor related issues
etc.
In Asian countries the government officeswork really slow, but they are very strictabout the fairness and clarity of everyprocess. Labor dispute is present in Asiancountries.
Labors often go on strike if their demands are not fulfilled within time.
The economy is highly vulnerable to external shocks arising from the global
financial crisis, which increases the risk that market
oriented reforms will give way to more protectionist
policies aimed at protecting the domestic economy.
Indias banks are not overly exposed directly to the
crisis in global financial market, but risk had
intensified in the line with home grown problems.
There are concerns that nonperforming loans have
picked up sharply owing to the stock market slump
and the property market downturn.
Procedural Risk
Economical Risk
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The Human resources planning model is run in the following for INDIAN OIL
CORPORATION LIMITED: PROJECT MANTHAN:
Forecasting Demand: Considerations
Produc t/Services Demand
Application:
Since 1976, the oil industry had operated under the government-controlled
administered price mechanism(APM) for petroleum products. The APM
ensured a fixed level of profitability for the government-owned oil companies
Human Resource Planning Process
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and ensured that products such as kerosene, used by economically weaker
sections of the population, and diesel, widely used in public transport and in
the agricultural sector, were protected from the volatility of the internationalmarket. A strategic planning group set up by the government in 1995
recommended the complete deregulation of Indias oil industry by April 2002.
Deregulation resulted in the oil industry moving from the APM to a market
determined pricing mechanism
Technology
Information Technology at IOCL: Electronic data processing (EDP) was
introduced in IOCL in 1966 with punchedcards and unit record machines.
These were replaced in 1986 by personalcomputers (PCs). Computers hadbeen traditionally opposed by IOCL unions,who perceived them as
replacements for workers. It was only in 1990, after PCshad become a
common feature in the organization, which the unions began to acceptthe
mainframe computer system in the organization. However, by that time, the
technology had progressed, and IOCL decided in 1992 to replace the
mainframeswith a distributed data processing environment.
Financial Resour ces
Their annual distribution cost and expenditure on project services and
material account for Rs34 billionand Rs40 billion respectively; even a one per
cent reduction through optimization and information analysis would entail a
substantial savings to IOCL. Initially we targeted Rs2.3 billion as annualized
savings but we have revised the target as our expectations have increased
with successes in implementation. Until now our focus has been on
standardization; with the rollout of the system to the entire corporation by
2004-2005, we will be a position to do a benchmarking of the savings.
Absenteeism/Turnover
Status: Information not available.
Organizat ional Growth
In October 1999, IOCL selected the internationally-reputed ERP package,
SAP R/3. The system would be accessed company-wide over a hybrid wide
area network. A.M. Rao, DGM (IS) noted the difficulty in selling this
centralized approach: Trying to sell the concept of a centralized system thatwould connect the entire country was difficult when we were not sure that a
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telephone call to the other end of the city would occur trouble free. The
optimal and efficient performance of the new centralized approach at IOCL
called for a telecommunications network unparalleled in the history ofcorporate India. In 1996, not only was the telecommunications sector
controlled by the government, the reliability of connections and bandwidth
adequacy was in doubt.
The Manthan team, however, felt that a multitiered communications strategy
would provide nearly 100 per cent uptime with adequate bandwidth. IOCL saw
this as an opportunity to implement a single integrated communication
network for the entire organization, dissolving divisional boundaries by
providing voice, video and data connectivity throughout the country.
Management Phi losoph y
Puri observed, In the immediate future, if everything goes well, we hope to
move toward a paperless office environment and an optimized supply chain.
The data generated at the central site from all locations of IOCL will be the
backbone for customized portals that will provide ready day-to-day information
on key performance indicators to senior management while facilitating the
launching of data warehousing and customer relationship management. We
believe that our Manthan experience can be leveraged by floating a new
company to offer consultancy services to our subsidiaries and joint venture
partners on training and implementation related to SAP R/3, networking and
hardware selection, while also becoming a beta testing site for major software
vendors.
Forecasting Demand: Techniques
Trend Analysis
Status: Information not available.
Managerial Estimates
While Puri and his team had faced several challenges in designing and
implementing Project Manthan, slow response time threatened to escalate the
challenge to a new level. As the Indian petroleum market continued to
undergo deregulation and an excess refining capacity appeared for the firsttime, customers had the flexibility to source their needs from companies that
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offered the best service at the least cost and time. One of the key business
requirements from Project Manthan had been its beneficial impact on the
customer relationship. Lengthy transaction processing delays (e.g. thegeneration of a sales invoice) could, however, trigger customer migration to
other oil companies. The Manthan team, however, felt that a multitiered
communications strategy would provide nearly 100 per cent uptime with
adequate bandwidth. IOCL saw this as an opportunity to implement a single
integrated communication network for the entire organization, dissolving
divisional boundaries by providing voice, video and data connectivity
throughout the country.
Delphi Techniqu e
Status: Information not available.
Forecasting Supply: Considerations
Demographic Changes
Status: Information not available.
Education of the Workforce
Status: Information not available.
Labor Mobi l i ty
Status:Information not available.
Government Pol icy
The PSUs certainly helped establish a core industrial base in India. However,
they had come to be known for their low productivity, unsatisfactory quality of
goods, excessive manpower utilization, inadequate human resource
development and low rate of return on capital. For instance, between 1980
and 2002, the average rate of return on capital employed by PSUs was only
3.4 per cent as against the average cost of borrowing of 8.7 per cent. In 1992,
the Indian government as part of a decisive move to stimulate the economy
began to disinvest in many PSUs and deregulate various sectors of theeconomy, allowing private and foreign participation and ownership in nearly
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every sector. The Manthan team, however, felt that a multitiered
communications strategy would provide nearly 100 per cent uptime with
adequate bandwidth.
Unemployment Rate
Status: Information not available.
Forecasting Supply: Techniques
Staf f ing table
Status: Information not available.
Markov Analysis
Status:Information not available.
Ski l ls Inventories
Status:Information not available.
Replacement Charts
Status:Information not available.
Succession Planning
Status:Information not available.
Balancing Demand and Supply:
The main problem of the company was not the HR issues. There was neither
surplus nor shortage of the workforce. Delays in completing front-end
transactions were not well received by customers and threatened to
compromise user co-operation in moving the corporation to a more
contemporary information processing platform. Moreover, Puri wondered if
any such pause might further erode user confidence in the project as a whole.
Yet, continuing on without sorting out the problem seemed to pose its own
dangers; the competitive environment did not seem to allow for the possibility
of pausing the implementation to try to solve the problem.
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Financial Analysis
The Indian oil refinery sector ispassing through a period of weakrefining margins. The grossrefining margins (GRMs) of mostdomestic refining companieshave been on a declining trendover 1999-2003 on account offactors such as global supplyoverhang and de-growth indemand for petroleum products,especially light and middledistillates in major consumingcountries. Furthermore, thehistorically low level of price differential between light-sweet and heavy-sourcrude oils made a significant negative impact on the GRMs of complexrefineries.
The GRMs of domestic refineries may remain weak over the medium term inline with low international refining margins, resulting from expected increase inglobal surplus capacity; moderate light-heavy differentials and lower import-duty differentials between petroleum products and crude oil. Higher-than-anticipated recovery in demand for petroleum products in major markets,delays in planned projects and closure of unviable refinery capacities maytranslate to some upside to GRM levels in the medium term.
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Short Term Solvency Ratio
Current Ratio
Cash Ratio
There is no sufficient information provided in the case.
Long Term Solvency Ratio
Total Debt Ratio
Debt to Equity Ratio
Equity Multiplier Ratio
There is no sufficient information provided in the case.
Market Value Ratio
Price Earnings Ratio
There is no sufficient information provided in the case.
Asset Utilization Ratio
Total Asset Turnover Ratio
There is no sufficient information provided in the case.
Profitability Ratio
Profit Margin Ratio
Return on Asset Ratio
Return on Equity Ratio
There is no sufficient information provided in the case.
Market Value Ratio
Price Earnings Ratio:
There is no sufficient information provided in the case.
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International Business Analysis
Porters Diamond Model
The porter Diamond:
The Porter Diamond is a theory showing four conditions as important for
competitive superiority: demand conditions; factor conditions; related andsupported industries; firm strategy, structure and rivalry.
1) Demand condition for porters diamond
Illustrate the theory that when demand for goods in the local market is larger
than in the export markets then local firms devote their resources to that
product than foreign firms leading to competitive advantage when they export
the product. The stronger and more dynamic the local market is the more
aware local firms are to international trends and the more national advantage
can be achieved. The demand conditions also affect the intensity of internalrivalry between companies. Growing demand tends to reduce rivalry as
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companies can sell more without taking market share away from other
companies, resulting in high profits.
Demand condition was high in both the countries India and France. In India
there was a confirm sales of 10000 tones yearly.
2) Factor conditions in India:
Factors conditions relate to how a country creates its own important factors
such as resources and technological base. These factors can be grouped into
human resources (qualification level, cost of labor, commitment etc.), material
resources (natural resources, vegetation, space etc.), knowledge resources,
capital resources, and infrastructure. They also include factors like quality ofresearch on universities, deregulation of labor markets, or liquidity of national
stock markets.
These national factors often provide initial advantages, which are
subsequently built upon. Each country has its own particular set of factor
conditions; hence, in each country will develop those industries for which the
particular set of factor conditions is optimal. This explains the existence of so-
called low-cost-countries (low costs of labor), agricultural countries (large
countries with fertile soil), or the start-up culture in the United States (well
developed venture capital market).
Porter points out that these factors are not necessarily nature-made or
inherited. They may develop and change. Political initiatives, technological
progress or socio-cultural changes, for instance, may shape national factor
conditions.
Factor condition was not very favorable, Indian Oil Corporation will have to
bring raw material from India if they want to set up a production plant outside
India. In France, the cost of labor was huge. But in India, labor was really
cheap.
3) Related and Supporting Industries:
set of strong related and supporting industries is important to the
competitiveness of firms. This includes suppliers and related industries. This
usually occurs at a regional level as opposed to a national level.
One internationally successful industry may lead to advantages in other
related or supporting industries. Competitive supplying industries will reinforce
innovation and internationalization in industries at later stages in the valuesystem. Besides suppliers, related industries are of importance. These are
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industries that can use and coordinate particular activities in the value chain
together, or that are concerned with complementary products.
To operate in both the country, India and France Indian Oil Corporation has to
bring the required supply on its own. In short;there were not too many related
and supporting industry, though India had CMC(real estate developing
industry) but France had none.
4) Firm Structure, Industry Structure and Rivalry
Firm structure of Indian Oil Corporation can help them a lot as their original
management system is closely in synchronization with both French and India
philosophy of management. Thus, Indian Oil Corporation can add this factor in
their favor when they will be launching their full scale operations in the other
countries. In India pipe industry, there are very few players which are driving
the market .however, there is an increasing competition among them, which is
increasing year after year.
Firm strategy and structure was regulated by the government in both India
and France. There were not too many rivalries in India.
Produ ct l i fe cyc le:
Now if we consider the condition of Water Purificatio market we can see thatthe industry is growing. From the analysis that we have done we found thatmarket is growing day by day. We found that market share loss and gainoccurs on consumption patterns. As a result Indian Oil Corporation Limitedalong with other companies facing huge problem and competition in themarket.
There were enough players in the market to compete. As a result thecompetition was huge and it was leading Indian Oil Corporation Limited
towards decreasing market share. As the competition was high the industrywas totally saturated. So without any doubt we can state that coffee industryis in the growth stage. Indian Oil Corporation Limited and along with othercompetitors are among the major players in the water purification industrywhich is in the growth stage according to the industry life cycle.
Introduction
In the introduction stage of the life cycle, an industry is in its infancy. At thisstage market size and growth is slight. Perhaps a new, unique product
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offering has been developed and patented, thus beginning a new industry.Some analysts even add an embryonic stage before introduction. At the
introduction stage, the firm may be alone in the industry. It is possible thatsubstantial research and development costs have been incurred in getting theproduct to this stage. In addition, marketing costs may be high in order to testthe market, undergo launch promotion and set up distribution channels. It ishighly unlikely that companies will make profits on products at the IntroductionStage.
Products at this stage have to be carefully monitored to ensure that they startto grow. Otherwise, the best option may be to withdraw or end the product.
Growth
Like the introduction stage, the growth stage also requires a significantamount of capital for the firm. The goal of marketing efforts at this stage is todifferentiate a firm's offerings from other competitors within the industry. If thenew product is successful (many are not), sales will start to grow and newcompetitors will enter the market, slowly eroding the market share of theinnovative firm.
The product starts to be exported to other markets and substantial efforts are
made to improve its distribution since competition mainly takes place more on
INDIAN OIL
CORPORATION
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the innovative capabilities of the product than on its price. This phase tends tobe associated by high levels of profits.
Maturity
As the industry approaches maturity, the industry life cycle curve becomesnoticeably flatter, indicating slowing growth. Some experts have labeled anadditional stage, called expansion, between growth and maturity. In fact, therate of sales expansion is typically equal to the growth rate of the economy.
The Maturity Stage is, perhaps, the most common stage for all markets. It is inthis stage that competition is most intense as companies fight to maintain their
market share. Here, both marketing and finance become key activities.Marketing spend has to be monitored carefully, since any significant movesare likely to be copied by competitors.
The Maturity Stage is the time when most profit is earned by the market as awhole. Any expenditure on research and development is likely to be restrictedto product modification and improvement and perhaps to improve productionefficiency and quality.
Decline
In the Decline Stage, the market is shrinking, reducing the overall amount ofprofit that can be shared amongst the remaining competitors. At this stage,great care has to be taken to manage the product carefully. It may be possibleto take out some production cost, to transfer production to a cheaper facility,sell the product into other, cheaper markets. Care should be taken to controlthe amount of stocks of the product.
Ultimately, depending on whether the product remains profitable, a companymay decide to end the product. In this phase, sales decrease at anaccelerating rate, causing the plotted curve to trend downward.
Industry life cycle:
Ind ian Oi l Corpora t ion L imi ted o i l ind ust ry in the deve lop ing count r ies is
in i ts grow th stage
A constant trend in the industry growth is being noticed. The possible sectors
for expansion opportunity for Water Purification industry have been identified.Different stakeholders of the business environment have made their positions
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clear to others. Government has come up with favorable and organizedpolicies and guidelines for the companies operating in the business. The
availability of employees with required skills are present in the local market.Also there is enough opportunity to train up more people in present as thereare