The factors that have contributed to our success is the commitment from our leadership, and the passion from our employees
Oswal was expected to be the Waterloo for IFFCO. Our people took up the challenge head on and turned it around to the profitable plant that is today
R.P. Singh, Director (Human Resources & Legal), IFFCO, in conversation with People Matters, shares his experiences on the successful turnaround of the Paradeep Unit, and how this success has helped IFFCO emerge as one of the most successful global stories in the Co-operative world
IFFCO has a very unique composition and governing structure. Can you take us briefly to the origins and evolution of IFFCO?
IFFCO is a multi-state Co-operative Society set up in 1967 with the help of Govt. of India, National Cooperative Development Corporation and about 57 Co-operative Societies as shareholders. We made a humble beginning with a very modest capital of 5.49 lakhs. The objective was that the needs of farmers, such as fertilizers, should be met through co-operatives. The first plant was set up in Kalol in Gujarat, and after that the second plant was set up in Kandla, again in Gujarat, followed by Phulpur and Aonla in Uttar Pradesh. Then on, we have only grown bigger and bigger. The factors that have contributed to our success is the commitment from our leadership, and the passion from our employees as they feel that they are working for the cause of rural empowerment, and not just for earning a livelihood. We started with 2 plants, then we had 4 plants, and after that all the 4 plants were expanded to double capacity. So in 4 locations, we now have 8 plants. After completion of every new project, another is taken up. We added another plant at Paradeep in Orissa, by way of acquisition, in the year 2005. Today we have 40,000 Co-operative Societies as our shareholders, and our turnover is 18 thousand crores. We are the largest manufacturers of fertilizer in the country, in fact in Asia. IFFCO returned the entire government equity, and is now fully owned by the Co-operatives. It is a Board managed company.
You have recently ventured into many new businesses like mining, chemicals, milk production, insurance, and oil and gas; what is the strategy behind these investments?
IFFCO has a very unique strength, which is our cooperative structure and national presence, reaching the most remote rural areas across the country. The challenges we face with our business is that the fertilizer industry is highly regulated. The Government fixes the price of selling, and the cost of production is very high. On one hand, the cost of the raw material is very high as most of it is imported, while on the other, the purchasing power of farmers is very low. Therefore, the Government intervenes and decides the price based on the cost of production and subsidizes the difference between the cost of production and the affordable price. We, thus as a business, live in a state of uncertainty. This triggered the need to diversify to leverage our strengths. In the year 2000, when the general insurance sector got de-regulated, we entered the insurance sector with a Joint Venture with Tokio Marine & Fire Insurance Company. Additionally, to realign our dependency on imported raw material, we have also done strategic investments in companies abroad to secure input supplies. We have recently acquired stakes in some of the foreign companies that will be our suppliers in times to come.
In 2005, IFFCO acquired the sick Paradeep Oswal Plant, when all odds were against the success of this investment. IFFCO’s turnaround of the plant has made history in the Co-operative Sector. What made IFFCO take such a risky decision?
When we acquired the Paradeep Plant, at the beginning, it was the decision of our Managing Director based on his gut feeling. In a strategic stroke, our MD realized that if we were to build the plant from scratch, acquiring land will be actually more expensive, not an easy process, and there will be heavy resistance that will cost us time and money. Here we have a plant already built, the challenge was to turn it around and make it productive.
Oswal’s plant was expected to be the Waterloo for IFFCO, our people took up the challenge head on and turned it around to the profitable plant that it is today.
I still remember when we visited the plant for the first time; we understood how bad the plant’s condition was. With no drainage systems, all floated from rain water; the conditions of work were very bad.
The first thing we did was to ensure to all employees that nobody will lose their job after the acquisition. Everybody below the general manager grade was automatically retained in the organization, and general manager and levels above, had to undergo a process of assessment to understand the fitment with the new organization.
How long did this transformation process take?
This process of transformation is a continuous process. We bought the plant in 2005 for a price of over Rs. 2,200 crores and we had to invest another Rs. 1,000 crores. We revived the production and took the plant to profit by end of 2008-2009.
What were the people challenges you faced during the transition?
We needed to work quickly so we engaged with the employees to nominate their representatives. Against common practice of industrialists, we encouraged creation of unions as we wanted to have a body that represented the employees which could work with us in the process of transformation.
The people issues were many; on one hand, IFFCO had a very well-defined and solid career structure whereas there was no system or process in place for recruitment & promotion in Oswal’s plant.We realized that the positions that people were holding were neither aligned to their qualifications, nor to their competencies. This was a big challenge as we had to refit everybody to the right level, grade and group, and that meant downgrading designations for many people. On the other hand, technology also needed to be upgraded quickly, but adequate skills were not available in the group of people we had acquired. We had to engage 100 of our retired employees and 200 of our employees from other plants to work together and upgrade the technology in the plant. They worked day and night to make it happened. Finally, the challenges with regard to outsourced labor were also huge as they wanted to become employees during this transition and have the same salary levels as the regular employees of IFFCO; this was not possible because of their nature of work and the internal structure of the plant. Finally, after many negotiations they agreed in contributing to the success of the plant and to continue to work with us through contractors as they were working earlier. Outsourced labor in our Paradeep unit is amongst the most well paid and satisfied workforce.
Everybody understood that it was a question of survival of the plant. People also appreciated the fact that in case of Cooperatives, there is no profit motive, as all surpluses go back, either to the organization, or to the Cooperative Societies. Farmers are the owners of this organization, farmers are the consumers of this organization, and farmers are the custodians of this organization. Worldwide, everyone said that the plant was irreparable. We invested heavily in training the pre-Oswal employees, we took them at par to IFFCO’s salaries, and as a consequence, everybody received a considerable increase in their take home. Eventually people understood that there was no going back and they had to join the team effort in making this plant survive and succeed.
How does your structure determine your functioning? How is decision making different from private or public sector companies?
We are a society of 40,000 cooperative members who elect their representatives to the general body from across the country. After the election is over, a total of 1,000 people are chosen and they then elect 11 directors to be on our Board. The Board has 30 members; 7 are Functional Directors, 11 are from the elected representatives and 10 are from the State Apex Co-operative Federation. Our network is spread all over the country through a matrix of employees, co-operative members, representative general body members and directors. This works as a system of checks and balances, for maintaining an ethical work culture in the organization. We have a very robust system based on dialogue; this is possible thanks to strong internal unions not having any external influence. For each production unit, we have recognized one ‘recognized union’ representing the workers and another ‘recognized association’ representing the officers. All unions and associations have a co-ordination committee which regularly meets with the top management, at least once every 3 months. The underlying culture is that all Board members, including myself, are available to our employees at any time and we have enabled several initiatives for employees such as a blog called HR Forum to connect with us directly, if they face any issues.