A phenomenal turnaround

Electronics Corporation of India Limited makes an astounding recovery from sickness and becomes a profit-making enterprise competent enough to meet the demands of a globalised economy.

FROM the brink of sickness in the post-Pokhran II sanctions era, the Hyderabad-based Electronics Corporation of India Limited (ECIL), a wholly owned Government of India enterprise, has achieved a dramatic turnaround and proved the public sector baiters wrong. Set up in 1967, the public sector undertaking (PSU) has expanded its mandate to create a strong, indigenous base in electronics and blossomed into a multi-product and multi-disciplinary organisation catering to the requirements of a varied clientele. Strong Research and Development (R&D) backup has enabled it to produce many of the country's firsts in electronics and information technology (IT).

In the mid-1990s, ECIL was down in the dumps. The impact of globalisation and economic liberalisation on it was severe. The growth rate was tapering off. The company, which registered profitable results in the period 1992-97, found the margins come down drastically and the pressure of competition, both from multinational corporations and from the Indian private sector, become intense. The company incurred a loss, for the first time in six years, in 1997-98.

The problems got accentuated in 1998-99 in the post Pokhran-II period when ECIL was included in the Entities List by the United States Department of Commerce; export embargoes were clamped on ECIL with respect to all items of U.S. origin. Several other Western countries followed suit and the operations of the company were adversely affected. The loss stood at Rs.60 crores in 1998-99 and the net worth got badly eroded.

The company was on the verge of sickness and had to be reported to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies Act (SICA). Employee morale was at its lowest, liquidity problems were acute, bankers threatened to reduce their exposure to the company, customers cancelled orders, and suppliers refused to extend credit. Customer satisfaction was badly affected and the image of the company suffered extensively. In this dismal situation, the company's Chairman and Managing Director (CMD) and two Directors left, in the middle of 1998-99.

It was in these circumstances that V.H. Ron officiated as CMD, from September 1, 1998 to October 31, 1999, and then took over as CMD from November 1, 1999. Pulling the company out of sickness was indeed a challenging task. Ron says: "The initiatives had to be need-specific and aimed at channelling the energies and resources of the company to align it with the path of recovery and consolidation.''

The turnaround that he effected can be attributed to employee motivation, product development, financial discipline, relationship managment with all stakeholders, stress on quality, more uniformly spread operations over the year, and empowerment of all performing divisions and people.

The first major step the company took was to tone up its organisation. A strong and cohesive team took charge at the top with the single-point agenda of taking the company towards the road to recovery. The team dealt with issues relating to the bidding process, employee morale and discipline, customer relationship, strategic alliances with business associates and even competitors, funds and supplier management.

It then went on to establish clear channels of communication with employees and collectives to drive home the point that the only way to survive was by performing. No external help was to be expected and that the intrinsic strengths of the company had to be fully brought into play to tide over the crisis. For the first time, the president and the secretary of the employees union and the officers association were invited to join the decision-making body, the Corporate Management Committee, which comprises the CMD, functional directors and executive directors, and the heads of strategic business units.

The transparency in all company affairs helped enlist full support from all employees. The collectives played a key role in implementing the Voluntary Retirement Scheme (VRS) and in convincing employees to make sacrifices such as forgoing certain privileges such as canteen, transport and education subsidy.

The CMD and the Director (Personnel) opened another channel of communication, called "Mukha Mukhi'' (interface), through which all employees could directly access the top management and provide feedback to help take corrective measures. Conscious efforts were made to spot performers. Performance and competence were spelt out as the sole criteria for assigning responsibilities and promoting staff.

The second step was to introduce financial discipline and efficient management of working capital. The heads of divisions were given full freedom in the utilisation of monetary resources, as long as they were able to collect the necessary funds to meet their fixed and variable expenditures on a monthly basis. This ensured that divisions assumed full responsibility for generating funds without looking out for corporate help. The success of this "collect and spend'' policy was discernible.

The company also succeeded in establishing several back-to-back payment arrangements with its main suppliers, which eased the strain on its resources. The levels of raw material inventories were brought down substantially. To help ease the stress on working capital needs, the company got substantial "supplier credit" as well as advances from customers. The working capital requirement came down from 63 per cent of the production cost in 1998-99 to 16 per cent in 2001-02.

The ECIL then focussed on business development and strategic alliances. It went all out to maximise its business generation prospects. In the nuclear sector, ECIL entered into a Memorandum of Understanding (MoU) with the Nuclear Power Corporation (NPC).

The company also took up proactive product development/upgradation work for Electronic Voting Machines (EVMs). The ECIL and Bharat Electronics Limited (BEL) shared the task, and met the stringent deadlines stipulated by the Election Commission. ECIL delivered 60,000 EVMs in just over two months after the order was received, underlining the fact that PSUs could perform as effectively as any performing organisation in any sector.

As part of its strategic alliance, ECIL teamed up with the Defence Electronics Research Laboratory (DLRL) and with BEL to function as a development-cum-supply agency for a complex electronic warfare project called Samyukta. In collaboration with Indian Telephone Industries (ITI), it developed business in the area of Wireless in Local Loop (WiLL). This, combined with the thrust on computer education, helped the company achieve a 20 per cent growth in sales in 2001-02 over the previous year, and post its highest-ever profit. The turnover figures of Rs.442 crores, Rs.569 crores and Rs.675 crores in the years 1999-2000, 2000-01 and 2001-2002 respectively, reflected a healthy growth rate of around 20 per cent. The company expects to cross the Rs.800-crore mark in 2002-03.

A "rightsizing'' exercise, taken up with the cooperation of the employees union and the officers' association, helped the company implement the VRS in the case of 302 employees during 2001-02. The company also made a "cultural shift'' from an R&D stronghold to a customer-centric organisation.

Operating in an open market, ECIL not only improved its profitability but also became completely debt-free by the end of 2001-2002. It was accorded a P1+ rating by the Credit Rating Information Services of India Limited (CRISIL) and an "excellent'' rating in respect of the MoU signed with the Department of Atomic Energy (DAE).

An analysis of status of financials from 1998-99 to 2001-02 shows that the turnover has gone up from Rs.251 crores to Rs.681 crores and the net worth from Rs.7 crores to Rs.146 crores. The orders have gone up from Rs.198 crores to Rs.600 crores. The net working capital was brought down from Rs.188 crores to Rs.89 crores and outstanding loans from Rs.220 crores to zero, and the employee cost as percentage of the turnover from 42 per cent to 24 per cent.

Endowed with a highly skilled human resource pool of 5,600 engineers and technicians, ECIL is on the threshold of achieving its mission of becoming a "valued national asset''. The strategic alliances stand testimony to its capabilities in engineering and indigenisation.

As part of its efforts to develop new products/services, a high-level Technology Development Council (TDC) was formed in association with the Bhabha Atomic Research Centre (BARC), Mumbai, to identify futuristic technologies that would support the business growth plans. "Triggers'' for the development of new products were listed out. Based on these triggers, a range of products were developed in 2001-02. These include universal electronic fuses for artillery guns, detection and pre-detonation of Radio Controlled Improvised Explosive Devices (RCIED), Conveyorised Parcel Viewer to detect powdery substances in parcels/mail, automatic message switching system (for airports), solid state cockpit voice recorder (for aircraft), Very/Ultra High Frequency Jammers (Communication Intelligence) with direction finding capability (for Defence Ministry), WiLL and Digital Loop Carrier (for Telecom).

A recent initiative was the promotion of an organisation, Society for Electronic Transactions and Security (SETS), that will enable the company to develop high technology, information security-related products.

Some of the major projects it took up and products it manufactured in recent times include nuclear power reactor control and instrumentation, full-scope replica simulators for nuclear and thermal power plants, integrated information management systems for airports in India and abroad, earth station antennae, electronic warfare systems and automatic data handling systems for air defence.

The other impressive products are solid state cockpit voice recorder (black box) for aircraft, X-ray baggage inspection systems for all airports in India, total security system solutions for key installations, real-time hydro-meteorological data acquisition and waste water management, telecom systems, message switching systems for telecom networks, and IT solutions for banking/ insurance.

The company has ISO 9001 certification for its capabilities in design, manufacturing, marketing and after-sales service. With clients like DAE and the Defence Department, quality is the mantra of the company.

Several awards came its way in 1999-2002, such as the Institution of Electronics and Telecommunication Engineers (IETE) Corporate Award for performance excellence in the field of electronic systems, Enterprise Excellence Award from the Indian Institution of Industrial Engineering, an `excellent' MoU rating from the Ministry of Heavy Industries and Public Enterprises, and Excellence in Electronics in the area of Professional Electronics from the Ministry of Communications and Information Technology.

As regards ECIL's dreams of going global, Ron says: "Going global also pushes up the quality and brand image.''

While major efforts are yet to materialise, ECIL's joint venture company, ECIL Rapiscan Limited, is but a small reflection of this ambition to explore the international arena.

ECIL has identified 17 product ranges for the global market. These include the Elisa equipment (for HIV testing), Air Traffic Management System, spectrometers, compact x-ray inspection systems, antennae and satellite communication products. Efforts are on to secure a major export contract from the Russian government for supply of X-ray scanning systems.

It is also trying to develop a network of agents in Thailand, Nepal, West Asia and the Philippines. It has also bid for a major order from the Philippines. It hopes to increase its export target from Rs.5 crores exports in March 2002, to Rs.20 crores by March 2003. The company expects better results from the financial year 2003-2004.