GAIL(I) Limited:An Organizational Management View

As a part of curriculum of Principle of Organization and Management (POM), today’s post will be analysis of GAIL (India) Limited from the point of view of Principles of Organizational Behaviour.

Origin

GAIL (India) Ltd was incorporated in August 1984 as a Central Public Sector Undertaking (PSU) under the Ministry of Petroleum & Natural Gas (MoP&NG) to create gas sector infrastructure for sustained development of the natural gas sector in the country with 100% equity held by the Government of India .Government today holds about 67% of the equity in the Company. The company was initially given the responsibility of construction, operation & maintenance of the Hazira – Vijaypur – Jagdishpur (HVJ) pipeline Project. It was one of the largest cross-country natural gas pipeline projects in the world. Originally this 1800 Km long pipeline was built at a cost of Rs 1700 Crores and it laid the foundation for development of market for natural Gas in India.

Vision and Mission:

When going through the GDPI processes for the Management Colleges, I was repeated asked why I wanted to do an MBA, and where I wanted to be 5-10 yrs from now. These questions felt weird at the time. But I realised that what they were asking is your aim, your Vision and what is your plan to achieve it that is what your Mission is. Here is the mission and vision of GAIL.

Vision

“Be the leading company in Natural Gas and beyond, with Global Focus, Committed to Customer Care, and Value Creation for all Stakeholders and Environmental Responsibility.”

Visions outline the aspiration of a business, where it wants to be, in the distant future.

Vision Statements don’t have a timeline and quite vague, outlining the most ideal scenario for the business.

GAIL is in fact on the right track to its vision. It becomes no 1 company in India in Gas Transmission and Marketing and Asia’s No. 1 Gas Utility Company and World’s No. 1 in Downstream Operation(Source: Platts)

Mission

“To accelerate and optimize the effective and economic use of Natural Gas and its fractions for the benefit of the national economy.”

The mission statement outlines how the vision statement can be achieved. For GAIL its core competence lies on Natural gas and its effective use to harness economic benefits to organization as well to India.

The objectives of GAIL through its Vision and Mission Statement give a sense of direction, purpose and unity within the organization, foundation for decision making, encourage strategic thinking and basis for measuring and controlling performance.

Before going further, here are some of the interesting facts about GAIL (source: Annual Report 2010-11)

GAIL Group of companies account for

• About 3/4^th of the natural gas transmitted in India through Pipelines.
• More than half of the natural Gas sold in India
• Almost 1/5^th of the polypropylene produced in India
• LPG produced for every 10^th LPG cylinder in the country
• Pipeline transmission of around 1/4^th of the country’s total LPG.
• Gas Supply for about half of the country’s fertilizer produced.
• Gas Supply for about half of the country’s gas based power generation
• Operating more than 2/3^rd of Country’s CNG Stations
• More than half of the country’s piped natural gas supply

Business Segment Analysis:

Ansoff's Growth Matrix (Product & Market Mix) : One of the common business strategy frameworks used in understanding growth strategies is the Ansoff's Growth Matrix, developed by H. Igor Ansoff – a strategic management guru. The matrix serves as a basic handy tool to set a firm thinking about the direction it wants to take in its search for growth.

As you can see in the diagram below, the two axes are marked by products and market respectively. Should the firm be expanding to new markets or target the existing market with new or existing products?

If the above model is put into GAIL case, it can be concluded that GAIL has strategies its business in all the four directions.

In market penetration, GAIL allocating more resources and efforts to build up sales and marketing activities in Gas transmission and marketing to attain revenue growth. Gas transmission and marketing is the core business of GAIL, and it has already captured a market share of 78% and 51% in gas transmission and gas marketing respectively.

Second quadrant, which is a little more risky than the previous one, GAIL is constantly creating new markets in different areas like Assam, Tripura, Pune, AP etc. It is planning to add another 6000 KMs of pipeline so to penetrate new markets in different geographical areas in India.

In product development and diversification quadrant, GAIL realized within a few years after its inception that considering limited reserves of Gas in the country, if the organization wants to grow it needs to diversify business. It entered into LPG business in 1990, into Petrochemicals in 1999, into Telecom business in 2001, into CNG business in 2003, into LNG 2004 and into Exploration and production in 2010.It also started acquiring Shale blocks in USA in 2010. GAIL diversification proved successful as 62 % of its profit for FY12 comes from these businesses.

It is a matter of fact that some of its diversified businesses become market leaders in the later stages. And it is awarded as World’s No. 1 Gas downstream company by Platts in 2010.

Following are one by one analysis of its business segments:

1. Natural Gas Marketing:

Natural Gas continues to be the core business of GAIL.It holds 50 % of the market shares in India.Major supplies include fuel to power plants and feedstock for gas based fertilizer plant.

2. Natural Gas Transmission:

GAIL is currently operates a network of 8644 KM of natural gas high pressure trunk pipeline with a capacity of approximately 170 MMSCMD of natural gas in the country. Company’s share of gas transmission business is around 74% in India with presence in 11 states.

3. LPG Transmission:

GAIL is the only company in India which owns and operates pipeline for exclusive LPG transmission for third party usage. Total LPG pipeline length is more than 1900 KM which is one of the largest in the word.

4. Petrochemicals:

GAIL has commissioned Petrochemical plant in Pata in UP with initial capacity of 280 KTA of PE which is later expanded to 440 KTA. Within no time, it has captured market share of 21% in India competing with biggies like Reliance through its quality LLDPE/HDPE products. It has also majority shares in BCPL in Assam which is setting up a 280 KTA gas and naphtha based petrochemical plant and substantial stakes in OPAL, Gujarat whose capacity is 1 MTA.

5. LPG & Other Liquid Hydrocarbons:

GAIL has 7 LPG plant in India. Every 10^th LPG cylinder is produced by GAIL.Main hydrocarbons are Propane, Naphtha and Pentane.

6. City Gas Distribution:

GAIL is a pioneer in City Gas Distribution (CGD) business in India, with Indraprastha Gas Limited (IGL) in Delhi and Mahanagar Gas Limited (MGL) in Mumbai being its biggest success stories. Besides IGL and MGL, GAIL has set up several JVs for CGD to supply gas to households, transport sector & commercial consumers in various cities including Hyderabad, Agartala, Kanpur, Indore, Vadodara, Lucknow, Agra and Pune. In 2008, GAIL incorporated a wholly owned subsidiary, GAIL Gas Ltd (GGL) to exclusively focus on city gas distribution business. It has More than 400 CNG Retail Outlets in 7 States and PNG Supply to more than 8 Lakhs Household in 8 States.

7. GAIL TEL:

Leveraging on its pipeline network, GAIL has built a strong Optic Fibre Cable (OFC) network of approximately 13,000 km for its own internal use and leasing of bandwidth as a carriers' carrier

8. Power:

As a part of its initiative towards reducing carbon footprint and creating a path of sustainable growth, GAIL is building a portfolio of renewable businesses. The company has successfully commissioned wind energy power projects of 118 MW across states of Gujarat, Tamil Nadu and Karnataka.

9. Exploration and Production (E&P)

Keeping in mind the requirement of growth and consolidation as well as opportunities arising out of New Exploration Licensing Policy (NELP) of Government of India, the company has moved into upstream of gas value chain i.e. Exploration & Production and currently has stakes in 31 E&P blocks including 2 blocks overseas (in Myanmar).

10. Global Presence:

As a strategy of going global and further expanding global footprint, GAIL has formed a wholly-owned subsidiary company, GAIL Global (Singapore) Pte Ltd. in Singapore, GAIL Global (USA) Inc. in Texas, USA.It has also equity stakes in Fayum Gas Company (FGC) and National Gas Company (Natgas) in Egypt and GAIL China Gas Global Energy Holdings Limited in China.

Organizational Structure and Corporate Governance

As per the Wikipedia, Corporate governance is "the system by which companies are directed and controlled”. It involves regulatory and market mechanisms, and the roles and relationships between a company’s management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees. An important theme of corporate governance is the nature and extent of accountability of people in the business.

Corporate Governance in GAIL has been strengthen by formulating and adopting code of conduct for Board Members and Senior Management Personnel, Code of conduct for prevention of Insider Trading.

GAIL has taken a number of initiatives in furtherance of goals for Corporate Governance like e-business, Bill Watch System, File Movement System, Customer Grievance Redressal System, Online Recruitment-Performance Management System, Online Vigilance Complaint Registration System-Budgeting System-Document Management System, Gas management System. Several MIS are in Place for efficient and effective decision making. Audit Committee oversees the internal control systems, their adequacy to bring transparency in decision making.

GAIL gets SCOPE Meritorious Award for Corporate Governance for the year 2007-08. GAIL (India) Limited was conferred a Certificate of Recognition for Excellence in Corporate Governance in the 10th ICSI National Award for Excellence in Corporate Governance 2010 as one of the Top Companies adopting Excellent Practices in Corporate Governance.

Tall Structure:

Like all traditional, large organisation, as GAIL grows, number of management level increases, the structure grows taller. The pros of tall structures lie in clarity and managerial control. The narrow span of control allows for close supervision of employees. Tall structures provide a clear, distinct layer with obvious lines of responsibility and control and a clear promotion structure. GAIL structure at the top is CMD, followed by board of Directors, Executive Directors, General Managers, Deputy General Managers, Chief Managers, Senior Managers, Managers, Deputy Manager and Senior Engineers, each having own responsibility and roles.

The clear roles and responsibilities also enable GAIL to delegate powers to different level. Greater delegation of Power (DOP) to executives frees up senior management for devoting their time to bigger and strategic aspects which are important to organisational growth. This enables board members to concentrate more on macro and strategic issues which are vital for the growth of existing and new businesses. DoP not facilitates quick decision making but also provide operational flexibility thereby reducing the procedural delays and speeding up organisation responsiveness.

Human Capital:

GAIL is known for its efficient and engaged work force of 3500+ employees.

Value added per employees gives an account of efforts of company’s employees to make the best and most productive resources available to them.

ISO 9001 certified GAIL Training Institute (GTI) at Noida and Jaipur have been constantly working towards development of Human Capital of the organisation. During FY 2010-11, approx 14,000 mandays training have been completed by GTI. It also received the prestigious National Award for Innovative Training Practices from Indian Society for Training and Development in 2011.GAIL also organised programs like Management Development Programs (MDPs) in institute like NITIE for development of pipeline of leaders.

A new website was created for the training institute of GAIL which was launched by CMD. Additionally, publicity material like brochures and AV film on activities and services of the training institute have also been prepared.

Employee engagement survey was carried out during FY 2010-11 to gauge the engagement level of the employees and valuable feedback was obtained from the employees on People Practices. GAIL was placed in the High Performance/Hewitt’s Best Employer Range.

GAIL has been complying with Reservation Policy in terms of Presidential Directives and other guidelines in respect to providing reservation in matters of employment to candidates belonging to SCs, STs, OBCs and PWDs in Direct Recruitment.

SWOT ANALYSIS:

Strength:

Gas Transmission 78%

Gas Marketing 50%

Strong Hold in Gas Business, top company in this sector

Strong Hold on all existing customers as well as new customers.

Weakness:

Delay in decision making due to Public Sector Structure.

Opportunity:

GAIL is making its presence in Polymer Sector through Pata Plant and its subsidiary BCPL and OPAL

Additional 6000 KM pipeline in the coming years to connect South and East India

Threats:

Limited Source of Gas in India and drying up at a faster rate.

Competition from ONGC and RIL is increasing in Petrochemicals due to competitors’ larger capacity production.

New Customers find it very difficult to deal with the requirement of GAIL.

In Global front, biggies in USA and Asia are playing a barrier for GAIL.