Over the last six years, a silent revolution has been taking place in some loss-making central public sector enterprises (CPSEs). Data from the department of public enterprises (DPE), based on CPSE annual reports, bear out this transformation. In 2004-05, there were 73 loss-making CPSEs, with their annual losses being in excess of R9,000 crore. By 2009-10, around 20 of these loss-making PSEs had started making profits, with a couple even becoming mini-ratnas.
What then is the formula that enabled these PSEs, many of which had been under the Board for Industrial and Financial Reconstruction (BIFR) to overcome their perpetual sickness and post profits within a relatively short period of three-four years? The short answer is ?focused and concerted effort on the part of the government to take quick and effective decisions driven not by political considerations but by the business necessities of the PSEs?.
The first step towards this was taken with the setting up of the Board for Reconstruction of Public Sector Enterprises (BRPSE) in December 2004 as an advisory body within the DPE.
While financial restructuring is no doubt important, unless other key enablers for a turnaround, like quality human resources, right product-services-client mix, optimum business model, state-of-art technology and best-in-class business processes and practices are put in place, there is a strong possibility of the company going back into losses.
So it may be useful to assess the revival plans of 11 CPSEs (out of the 20 which turned around) identified and documented by the DPE as successful turnaround case studies. On taking a closer look at the revival strategies of these CPSEs, a set of common interventions begin to emerge. The first is induction of suitably qualified technocrats with extensive sector experience into the senior management of companies.
Secondly, almost all enterprises re-engineered their product-services-client portfolio in line with market requirements and contemporary technology trends. Bridge & Roof Co is a case in point, where the company consciously shifted its focus from low value added fabrication/construction jobs to, high value lump sum turnkey (LSTK) projects in high growth sectors like oil & gas, railways, etc. The client mix of the company also changed significantly from being primarily government-based to over 30% of orders coming from large private sector companies. Key enabling interventions like balance sheet restructuring for achieving a positive net worth (essential for qualification in large LSTK projects), government counter-guarantees for working-capital-borrowings and incremental capital investments to upgrade technology were included in the turnaround plan.
Thirdly, adoption of innovative business models, like using relatively low-cost outsourced manpower for routine activities, have contributed to the PSEs revival. Thus, while many companies like BBJ Construction Co, Bridge & Roof Co use locally contracted manpower for routine project site-specific activities, companies like Mecon, which derive most of their revenues from cyclical sectors like iron & steel, have decided to maintain an optimum employee strength with additional requirements being taken care of through outsourced manpower. Many of the companies undergoing revival, like Cement Corporation of India, have managed to significantly reduce their fixed overheads from non-operative facilities through voluntary retirement schemes (VRS) for manpower separation.
Improvement of core operations processes and human resources management (HRM) practices constitutes the fourth common intervention behind the success stories. HEC, for example, has introduced several contempo rary-HRM-practices-like multi-skilling, performance-based incentives, role-based training as well as operational initiatives to de-bottleneck production lines and monitor performance at each stage of the production/fabrication process. Another CPSE, Braithwaite & Co, has implemented an enterprise resource planning (ERP) system at its key facilities for improving supply chain performance.
While the jury is still out on the issue, the initial results are encouraging. All these CPSEs have consistently posted net profits during the last four years. From net losses of R561 crore in 2004-05, these 11 CPSEs posted net profits of R331 crore in 2009-10. Their aggregate gross turnover increased from R1,524 crore to R3,954 crore during this period. If these results are anything to go by, the government finally seems to have got its act right in turning around loss-making PSEs.
The writer is senior director, Deloitte Touche Tohmatsu India. Views are personal
