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Thursday, August 25, 2011

HPCL 08-25

Pa l l a d i um B a l a n c e d S c o r e c a r d Ha l l o f F ame R e p o r t 2 0 1 1 33
Hindustan Petroleum
Corporation Ltd.

A Mumbai-based oil and gas giant focused on customer satisfaction to become competitive in a transformed industry. With the BSC as the tool for executing its new customer intimacy strategy, Hindustan Petroleum has achieved dramatic gains in workforce alignment, revenue,
dealer supply times, and other critical metrics.

Boasting $25 billion in annual sales and an 11,000-strong workforce, Hindustan Petroleum Corporation Ltd. (HPCL) is a Fortune 500 giant. The Mumbai-headquartered company was created in
1974 and owns and operates two major oil refineries as well as the largest lubricants refinery in India. Its other business units include Aviation, Bulk Fuel, Liquefied Petroleum Gas (LPG), Lubricants,
Retail (60% of the company’s business), Trade (including oil and petroleum-product imports and exports), Exploration and Production, and Joint Venture Companies.1 HPCL has 13 regional marketing offices, 130 terminals and depots, more than 8,500 gas stations, 43 LPG plants, and 2,250 LPG dealerships. Three large cross-country pipelines carry petroleum products to the company’s major supply points.

Sharpening Focus on the Customer
Like all Indian oil companies, HPCL is a “mega public sector unit”—51% government owned and subject to price and wage constraints. Until the late 1990s, it operated in a predictable environment and faced little private sector or global competition. In the state-regulated oil industry, the government even planned
industry growth. But the next decade brought liberalized trade. The opening of the Indian markets to multinationals and private enterprise created new found competition. Although HPCL enjoyed solid
financial performance, its executives recognized that customer satisfaction had to be the primary goal if HPCL hoped to remain competitive in its radically reshaped industry. And a motivated,
sharper workforce would be key to achieving that goal. In February 2003, top executives, along with functional-area and SBU heads, began intensive deliberations to craft their own individual visions of the organization’s—and their personal— success as it related to customer satisfaction. From these, they
articulated a corporate-level vision: to “delight customers [through] superior understanding and fulfill their stated and latent needs with innovative products and services.” The visionalso included being more agile than the competition, being a “learning and innovative organization,” and creating “an environment of trust, pride, and camaraderie”—all while achieving the highest possible growth rate and ROI.Management then built the corporate strategy map and scorecard.Objectives included “Improve strategic thinking capabilities”
(learning and growth perspective), “Ensure inter-SBU coordination” (internal process), “Increase profitability of dealers”
(customer), “Increase focus on premium products” (financial),and “Conscientious corporate citizen” (corporate).

Building a Shared Vision
Executives knew that the new organizational vision couldn't be achieved through management edict alone. To buy in to HPCL’s desired future, employees had to help define it. This would be a challenge, given the civil-service mind-set that had characterized the company’s workforce for so long. The answer: building
a shared vision.2 Then–human resources director (and future chairman) Arun Balakrishnan recommended adopting the Balanced Scorecard to execute the customer intimacy strategy that
would be crucial to realizing HPCL’s vision. Through a series of workshops held in 2003, managers and
employees (including unionized labor) from HPCL’s SBUs, shared services units, and teams articulated their own vision for their units in alignment with the organizational vision. Using such
leading techniques as SWOT (strengths, weaknesses, opportunities, and threats) analysis and Michael Porter’s Five Forces approach, the units then crafted strategies for realizing their
vision and, with the help of internal coaches, depicted them on corresponding strategy maps and scorecards—a total of 200 BSCs for the operating units and functional areas, and 500 for team leaders. In addition, the company asked each employee to identify his or her career (and even personal) aspirations as they
related to the company’s future. Executives knew that the new organizational vision
couldn’t be achieved through management edict alone. To buy in to HPCL’s desired future, employees had to help define it. This would be a challenge,
given the civil-service mind-set that had characterized the company’s workforce for so long. The
answer: building a shared vision.

Securing Commitment to Strategy Execution
HPCL launched a plethora of initiatives to secure the commitment to strategy execution. For example, it created a performance measurement system for each corporate officer, sending
the message that the highest levels of leadership were just as accountable for strategy execution as the lowest-level employees. Officers’ incentives are based on not only how they perform against their scorecard targets but also how their SBU performs.

34 S t r a t e g y E x e c u t i o n C h amp i o n s
The company also identified strategic job families and provided training and developmental experiences (including mandatory job rotations for managers) on the competencies essential for
each job family. It provides continuous training on BSC methodology as well, delivering about 70 workshops to more than 600 officers in 2009 alone. Careful crafting of service-level agreements (SLAs) between shared service functions and SBUs further reinforced commitment.
\To draw up the SLAs, managers answered two questions: (1) “What help does our unit or function need to provide to make this SBU’s strategy successful?” and (2) “How do we offer goods
and services to be superior to an external supplier providing similar services?”
The company also encourages best practice sharing by enabling managers and employees to share success stories through multiple communication channels: the chairman’s blog and regular executive and business council meetings, webcasts, corporate emails, fliers, in-house magazines, and large-scale
town-hall meetings. The company has also put in place online work systems such as HR tools and internal channels of communication to improve transparency, individual employee
performance, and efficiency in communications.

Scoring Impressive Successes

HPCL’s dedication to strategy execution has delivered impressive results in the five years since the company adopted the BSC. Revenue more than doubled, the company’s retail network grew almost 30%, and dealer supply time (the time between receipt of a purchase order and shipment) shrank from 24 hours to just
two hours for high-volume “category A” dealers. Refinery project delays decreased from as long as 24 months to on-time performance, and new-employee attrition fell by more than 40%.
Equally remarkable, when major government-owned Indian companies went on strike during January 2009 to protest a delay in pay increases, HPCL officers declined to join them. The company
worked around the clock during the three days of the strike to serve customers, staving off what could have turned into a complete shutdown of India’s transportation infrastructure. Grateful customers praised HPCL for helping them continue to operate during the strike—giving the company a powerful edge
over rivals in instilling customer trust and faith. A dizzying array of awards, domestic and global, further testifies to the company’s success. For example, HPCL became the only Indian aviation fuel company to win the Golden Peacock award for environmental management. And in 2008, it won the NDTV Profit Business Leadership Award, given to companies that have fueled the Indian economy and nurtured excellence. It has won national training and marketing awards, and over several years was named best employer in India by Hewitt Associates.Notes Balakrishnan, who retired in August 2010, “The Balanced
Scorecard has become the method for communicating and implementing change as we become a more customer-focused learning organization.” His successor, Shri S. Roy Choudhury, former director of marketing and BSC program head—and a fervent believer in the impact of learning and growth and
internal process perspective objectives on customer and financial outcomes—has oriented the organization toward holistic measurement systems.

(All results from 2004–2009)

• Revenue jumped from approximately $14.4 billion
(Rs 652.2 billion) to approximately $25 billion.

• The number of retail stations increased from 6,667 to
8,539—a jump of almost 30%.

• Turnover of new hires decreased from 11% to 6%.

• Project delays fell from as long as 24 months to on time.

• New pipeline throughput in 2010 was 11.95 million
metric tons (MMT), compared with 6.14 MMT in 2003–04;
and the length of HPCL’s own pipeline (i.e., excluding
joint venture pipelines) grew from some 730 kilometers
to 2,130 kilometers.
Execution Premium
• Integrating BSC reporting software with the company’s
existing enterprise resource planning platform.

• Continuing to train newly hired managers in the BSC

• Holding vision-building workshops.

• Revisiting strategy maps at least quarterly to ensure
alignment of objectives and initiatives.

• Reviewing and refreshing individual Balanced
Scorecards to conform to strategy map and BSC
Future Focus
1 HPCL currently has nine joint ventures and two subsidiaries in such businesses as manufacturing and marketing specialized bitumen emulsion, underground LPG
storage, and distributing and marketing environmentally friendly fuels.

2 Shared Vision is one of the five disciplines of a learning organization defined by Peter Senge in his book The Fifth Discipline. The remaining disciplines are,

Team Learning, Personal Mastery, Mental Models, and Systems Thinking.