Organization Design

Project report submitted by

Roll No. Name

181113 Rahul Mayank

Scope of study:

As said by management guru Peter F. Drucker “good organization structure does not, by itself, produce
good performance, but a poor organization structure makes good performance impossible, no matter how
good the individual may be.”, success of any organization depends on effectiveness of decentralization of
authority, control over power sources, flexibility and adaptability with changing technology & business
environment, adaptability with changing customer demand and development and engagement of its
employees in core operation. With rapidly changing global business environment, it is very critical to study
how & why some of the business giants are falling or how rest are coping with. How a typical organization
deals with various issues of globalization, communication, cultural diversity, internal conflict, environmental
uncertainty and satisfies multiple stakeholders and grows further, is the focus of this study.

Why ONGC?
ONGC is the 2nd largest company worldwide among global Exploration & Production (E&P) companies, just
after China National Offshore Oil Corporation. With increasing conflict in South China Sea and Arctic
region over natural resources, mostly oil and gas, it is very critical for Indian business and international
relations, that the flagship Indian company deal with global uncertainties and change its structure to be at par
with the competitors. ONGC has a significant role to play in both domestic and international energy strategy
of India. Thus, while ONGC produces only a small amount of the world’s energy and controls a small
portion of global reserves, it figures as a central entity in the search for energy by one of the fastest growing
consumers of oil and gas in the world, i.e India. ONGC’s performance will affect India’s energy-related
plans for the future. Thus, besides the importance of ONGC for its own sake, the importance of ONGC in the
eyes of the Indian government is very critical.
ONGC, a Maharatna company, the most valued public sector company and the most dominant oil and gas
producer in India, is one of the best available organizations to study organizational restructuring. In a
negative environment of decreasing resource base, stricter regulations on Carbon footprint & tumbling oil
prices across the world, ONGC has restructured and showed its capability to plan and adapt quickly and
appropriately in a challenging environment to remain competitive with operational efficiency & financial
figures.

Objectives of the Project

1) Map the evolution of the company
2) Changes in the company’s structure from a business group to assets and services based
structure
3) Changes in culture and recruitment policy
4) Adapting with Information Technology as a control strategy
Introduction to ONGC:

ONGC is one of the state owned Maharatna integrated oil & gas corporate. It is mainly focused on E&P,
refining, LNG, power, petrochemicals. ONGC produces 1.24 million barrels of oil & oil equivalent natural
gas per day, it’s refining 12.6MMTPA and extracting 3.2 MMTPA of LPG, Naptha etc from gas on an
average. It supplies 70% of domestic crude production.
It is a fully integrated oil and gas company catering to exploration and production activities. The various
functional units are drilling, well completions, workover operations on well, objects testing & well
stimulation, reservoir flow studies, health, safety and environment, etc.
Not only in India, ONGC is engaged in exploration & production in 20 countries and 41 projects.
The company has been ranked 183rd in Forbes Global 2000 list and has been featured as “Most Admired
Energy Companies List” in Forbes.

ONGC Group Structure:

Figure 1: Ongc Group of companies

Growth Story of ONGC:

In 1955, Oil and Natural Gas Directorate was established as oil and gas division of Geological Survey of
India, India delved into new frontier of oil and gas exploration. Soon converted to Oil and Natural Gas
Commission in 1956. In 1956 it succeeded in its first exploration in Cambay valley. The Directorate
converted to a statutory body under act of Parliament in 1959. It started ONGC Videsh operations in 1965.
Started first offshore well operations in 1970 and discovered Bombey High in 1974. In 1993, the company
was reorganized as limited company and listed in stock market. The Oil and Natural Gas Commission
converted into Corporation in 1994 and given NAVARATNA status. In 2003, It acquired Mangalore
Refineries Petrochemicals Limited from Birla Group. ONGC was conferred “MAHARATNA” status in
2010. Recently in 2018, ONGC merged vertically with HPCL. This has added to its overall refining capacity
in an effort to become an overall energy integrated company from upstream crude oil production to
downstream refining of crude oil and finally marketing this to end consumers. This has brought ONGC on an
equal pedestal as oil industry behemoths such as Saudi Aramco, Exxon Mobil, etc.

Evolution of Organizational structure:

Commission Structure:
The first organizational structure outline of ONGC was drawn on the Russian report prepared under
leadership of Mr. N. A. Kalinin in 1954. The structure adopted by Govt. of India was functional or
departmental structure in 1956. This structure helped govt. to ensure maximum utilization of financial
resources and increased operational efficiency and developed functional skills.
But it failed to inculcate a work culture and sense of ownership among the employees. Also, the organization
suffer from “Red tapism”. Lack of decentralization and decision-making capability was affecting its business
flexibility. Changing of structure became evident due to increased scale of business and complexity of labor-
management problems.

Statutory body:
To make the authority more accountable & bring more involvement and efficiency, it moved to statutory
corporation structure by special act of parliament in 1959. This structure reduce day to day decision making
dependency on govt. and more freedom in terms of planning, promoting, organizing and implementing of
projects. As a public corporation, ONGC enjoyed financial freedom but for any capital expenditure beyond
limit as mentioned in the act, it was bound to take approval from govt.
But ONGC as a statutory corporation failed to exploit its full freedom due to impending political and
administrative interference from ruling parties. As correctly said by Prof. Marshall Edward Dimock
“administrative formulae and management principles are rarely if ever capable of immunization against
group pressures and public policy controls, which bend administration to their own design, sometimes in
conformity with what the impartial experts consider sound principles and practice but just as often in
knowing disregard of such considerations.” Its also failed to efficiently apply its main principle of combining
business to public service rather than profitability of stakeholders. The structure also created transparency
problem, as a statutory corporation it was only answerable to parliament which created the gap.
Functional Matrix based Structure:
Prior to 1971, organization structure of ONGC was director based. But as ONGC was evolving as one of the
biggest oil and gas exploration company of south-east Asia and was moving upward in its, it was very critical
to improve organizational structure. As per recommendation of Malviya Committee in 1971, the company
moved towards a project-based structure. Functions were regrouped into Exploration, drilling, operation and
production. Re-grouping was done on a common basin approach.
With increasing uncertainty in oil & gas business, new private entrants in market, technological
development, changing business environment, need for further organization structure development became
eminent. It needed to be more customer focused and market adaptable. The ’91 economic stress also made a
huge effect. Low efficiency, productivity and profitability and critical oil crisis due to gulf war aggravated
the situation. Main focus for this restructuring was to enhance public accountability and maximize possible
utilization of resources and reduce political and administrative influence.
In February 1994, the oil and natural gas commission was changed to oil and natural gas corporation and was
incorporated as a public limited company, led to much better flexibility both in term of policies and structure.
ONGC became more adaptable in collaboration with foreign parties.

Asset & Service based Structure:

McKinsey & Co. took over corporate restructuring project to change the company structure from a business
groups-based structure to an asset & services based structure. This was necessitated by the changing
environment after introduction of New Exploration Licensing Policy.
Now, after approval of Hydrocarbon exploration and licensing policy in Feb, 2018 and persistent low crude
oil prices have posed a new challenge which need to be addressed to.

ONGC Organisational Structure

WHAT NECESSITATED THE CHANGE- NELP?

The ever increasing import dependence needed newer sedimentary basins to be opened for production. In
order to bring in international experience and enhance competitiveness, the blocks were put to auction. The
objective was to bring in newer blocks under production.
a. Bidding for new blocks, open business to other players apart from ONGC & OIL
b. Standardization of fiscal and contract terms for all companies
c. Independence in marketing of crude oil and gas produced in India

BACKGROUND STRUCTURE AND FUNCTIONAL MATRIX OF ONGC BEFORE NELP

NEED FOR THE CHANGES

1. As Exploration and production industry is involved with huge uncertainty in following factors:
a) Geological: Diminishing field size with increasing maturity of basins
 a) Financial: Requirement of budget intensifies after the discovery of site. Moreover, operating
expenditure is increasing significantly over the years.
b) Political: Volatility in crude oil prices because of government policies intervention.
2. Changing industry dynamics like rapid technological innovation and increasing concerns for
environmental safety compels organizational change.
3. Need to improve service efficiency and capture new business potential
4. Need to arrest declining trend in hydrocarbon reserves and improve recovery factor of producing fields to
international standards.
5. Interruption of NELP by government in 1997 for award of hydrocarbon acreages. Because of this, ONGC
faced competition from other oil companies in obtaining block for exploration

ACTIONS TAKEN BY ONGC TO MITIGATE CHALLENGES FACED DUE TO NELP:

ONGC has hired McKinsey & Co. as consultant and introduced a specialist team within the
organization to aid the consultants. The collaboration soon came up with an advice to launch organization
transformation project (OTP) to bring major changes in functional structure. The following table depicts the
SWOT analysis by Mckinsey for ONGC:

S W O T
STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

Distinctive record of Business Groups led to Advances in technology Competition from

independently finding creation of silos that and research private players after
and opening new results in diffused NELP
basins accountability

Competitive cost Inadequate sharing of Operating freedom and Depleting natural

position in finding, knowledge and accountability under reserves
drilling and lifting information ‘Navratna’ Package

Unrivaled supply pool Skills for key activities Easier licensing policies Dynamic global price
of skilled Indian like exploration and leading to introduction of changes
scientists and reservoir management is independents
technicians fragmented abruptly
 Privileged access to Weak commercial focus With the converge of Indian crude oil demand
quality acreage within on reserve accretion service company and outpaces supply quantity
India and lagging operating roles,Majors
internationally and NOCs are reorganised
around assets.

MAJOR RECOMMENDATIONS BY MACKINSEY

a) Task based groups to be created as against discipline based groups, which take single point
responsibility for key activities in accountable manner.
b) Redesigning of key business processes, through task forces for faster and improved decision making
resulting in transparent performance management system.
c) Introduction and integration of IT enabled systems in key areas
d) Introduction of concept of Multi-disciplinary team which works with collaborative approach.
e) Open and transparent communication
f) Transformation to asset based structure from function based structure.

WHAT ARE MULTI DISCIPLINARY TEAMS (MDTs)?

● MDTs consist of one representative from each of the above mentioned functional groups.
● These specially introduced teams are optimally sized and represent all disciplines needed to perform
the desired task.
● These are self directed with leaders and managers serving as enablers.
● They are focused by clearly self generated goals and objectives which have management inputs and
agreement.
● They promote cross functional solutions and inputs.

STRUCTURE AFTER NELP

McKinsey recommended following an Asset and Services based structure rather than a functional based
structure. The new structure is as shown in the chart below:
CONCEPT OF ASSET AND SERVICE BASED STRUCTURE
Producing assets includes services like production, reservoir management and extensions of producing areas.
Exploratory assets works on reserve accretion primarily in exploration areas in india and overseas. Service
provider works on provision of services to producing and explanatory assets and external customers.
Centralised corporate functions involves setting of policies and carrying out of common activities.
The assets and the services enter into a service level agreement which includes service availability, cost
quality, and on-time performance targets. Bothe the performance of assets and services are benchmarked
against international best practices and external service providers. Apart from this both of them are
answerable to the top management by a performance contract. The performance contract of assets
incorporates production accretion, cost, health safety environment, personnel related targets which is
contingent on SLA fulfillment. Similarly, the performance contract of services includes service revenue, rig
deployment and utility for drilling, exploration , well completions and workover completions. Quarterly, Bi-
annually and annual appraisal of this performance contract and SLA is reviewed and contract is renewed at
the end of financial year.

SUMMARY OF CHANGES

FROM TO

Overall objective Maximise production volume Maximise economic value and reserve accretion

Performance Focus on expenditure budgets Focus on financial performance of individual

management E&P(exploration and products) assets

Organisational Ministry of petroleum and To MOP & NG, financial institutions, other
accountability natural gas (MOP & NG) shareholders, alliance partners

Individual Diffused Focussed specially on commercial goals

accountability

Systems Administrative, constraining and Aligned to overall objectives

procedural

Working approach Fragmented with functional Multidiscilpinary with team based

silos

Culture of ONGC
The various facets of cultural elements of an organization are as shown in the figure below.

Rites and
Ceremonies

Stories
Symbols and
Myths
Organization
al Culture

Organizational Power
Structures Relationships

Control
System

Rites to Passage

To motivate the employees, there are rites to passage.

Every graduate trainee who’s recruited in the company goes through a rigorous training of 2-3 months at
ONGC academy in Dehradun where he/she is trained in every discipline irrespective of his/her specialisation.
Employees are also supposed to go through an outbound activity in lower Himalayas in Shivalik hills.

Motivational Stories
There are motivational stories about NB Prasad. Mr. Nuthakki Bhanu Prasad, was appointed as the chairman
of the ONGC in 1974, a position he held till 1978. He was a phenomenal geo-scientist who played an
important role in finding Basin Satellite and marginal fields like D1 field, a field in Bombay High. In honour
of him, the field is named as NBP field.
The daily production of D1 field is 32k barrels of oil per day. This has helped sustain the overall production
as the Bombay High fields are brown fields whose productions are declining continuously. This is the 1 st
time when a field has been named after a person to glorify the contributions of person towards the
organisation.

Symbols
It has been mandatory for the key executives and the top level managers to wear upon their person the
ONGC logo at all times during video conferences, board meetings, public appearances and internal meetings
as well. This is to instill a sense of pride among the employees as energy soldiers of the nation and the
sacrifices and the valuable contribution they make for the country. ONGC has come up with green buildings
at Delhi, Dehradun and Mumbai, towards its aim of designing sustainable office spaces. These spaces have
30% lesser energy requirement with design incorporating natural light penetration.

Power relationship
Since the core operation of ONGC revolves around drilling and production, these two verticals are quite
powerful and very formalised based primarily on their contribution to the organisation. The supporting
department such as reservoir, geophysics, cementing and mud-services aid and advice the core departments.
The fringe functions such as HR, Finance, Corporate communication augment the organisational functioning.
Earlier in the pre-NELP era, the competition in the market was very low. But the NELP policy of the
government made the market competitive. To cope up with the competition, there was a need for the
company to restructure as per the changing environment and the change was also required in the culture and
the recruitment policy. Being a government organization, ONGC had a bureaucratic culture in the past. But,
then it moved towards the mission culture since it became a maharatna company.

RECRUITMENT POLICY AND EMPLOYEE PYRAMID

Before 1995, there was a separate recruitment policy for the technicians and executives. Most of the work
was blue collared and the white collared job was done by Russian and the Japanese. For the blue collared job,
no educational qualifications were required and the recruitment was purely based on the physical built. There
was uniform, time based promotion policy for everyone without any technical tests at any later stage after
recruitment. This led to the promotion of technicians to the managerial roles without any core managerial
competency.
As the technology changed, the demands changed. The skills required at each level increased, which meant,
more of technicians were required. So, Diploma holders and engineers were hired for technicians roles. But,
due to a change in government recruitment policy in 1995, there was minimum recruitment for a decade
(1995-2005) in the PSUs.
As there is no policy of lateral recruitment in ONGC, and each employee escalates to the top right from the
bottom and, there was no recruitment for 10 years, it was realized in 2005 that all of a sudden 18,128 people
who were recruited earlier are going to retire from 2018-2022 and there are no subordinates to replace them.
There is going to be a leadership vacuum because of this. The company would be facing a dearth of senior
level managers. This would result in a lop sided pyramid instead of a straight pyramid.
 200

2018-2022
18128 people retire
4000

18000

To fill this gap, many junior executives were promoted. They got an opportunity to share bigger
responsibilities at an early stage. ONGC’s policy of promoting Graduate Trainees to senior level managers
was revised due to a dearth of senior level managers. The company introduced a policy of lateral hiring. But
every solution comes for a cost. The problem with this was, the laterally hired managers didn’t know the
problems that the employees face at the lower level. Earlier, the senior managers who were promoted to that
stage went through the stages and they knew the problems that their subordinates will be facing.

SAP Implementation-IT as a Control System

Before Implementation
One of the most valuable resources for any organization is information, it is more so for an oil company.
ONGC spanned across 10 countries outside India and it wanted to implement IT control system for
streamlining the Supply chain management and inventory control business processes so that all the pertinent
information regarding the business core operations is available in one place.
Earlier ONGC used a legacy system for planning and implementation. They used hardware of HP, Compaq,
IBM, and Sun. The operating system used were Microsoft Win NT, Sun Solaris and open source operating
system UNIX. The database employed was Oracle.

Challenges Faced
The migration to a different control system of IT control was not going to be easy due to a variety of factors.
The biggest hurdle was collation and consolidation of operational data which was huge. Also, the entire
process was time-consuming. The amount of data that had to be migrated from earlier legacy systems to the
new system was immense. Hundreds if business processes for thousands of users had to be standardized for
both onshore and offshore locations. While this migration to the new system was taking place, it could not
upset the existing operations. All this had to be done in a very stringent timeline of 30 months, which also
included the stabilization process.

Implementation of ICE
With the above-mentioned challenges kept in mind, a project named ICE (Information Consolidation for
Efficiency) was started. The organization as a whole is a single entity and hence the data available to it must
be uniform, the information provided must also be the same across various entities. Hence the motto of this
project was “One organization, One Data, One Information”. ERP package was introduced whose main aim
was to provide real-time information thereby eliminating duplicate activities and hence improving the overall
profitability of the organization by providing better control to the management team. State of the art
technology SCADA was used to leverage productivity by providing real-time information. A separate budget
of about one thousand crores was set aside to invest in IT, along with an additional ninety-five crores to be
spent in towards SAP implementation.

SHRAMIK KUBER
(SAP) (SAP)

EPINET Oracle
Integration
of
Information

ICE Project
By SAP

Objectives of SAP Implementation

The reason for implementing SAP was many. The main objective that it would cater to was to optimize
business processes by integrating and extending the value chain and if need be creating new efficient
processes. Also, all the operations should be better visible so that productivity is improved.
A lot of different areas were to be covered during SAP implementation which included corporate financial
management, enterprise portals, strategic enterprise management, financials, product lifecycle management
among many others. The time duration for this implementation was 30 months and it had to be done across
five regions which catered to almost nine thousand users.
A lot of factors helped in deciding SAP as the final solution to the problem. The primary reasons were
1. ONGC was already using Sharmik – a human resource package and Kuber – a financial package from
the SAP.
2. The new solutions proposed would, therefore, complement the existing packages from SAP and
money could be saved if SAP was chosen as there was no need to re-implement human resource and
financial packages.
3. Also, globally speaking, SAP has experience with oil and gas production and hence it was a safe bet
to go with SAP.

Implementation
As a result of all the above mentioned considerations, a deal worth nineteen million US dollars was signed
between SAP India and ONGC for implementation of the project ICE, which was the largest consulting deal
for SAP Asia Pacific and it would be the largest ERP project in Asia as it would cater to eight thousand and
five hundred users. The deal was to provide a comprehensive IT-enabled system to ONGC.
Plan
The plan was to implement a lot of SAP solutions including mySAP Business Suite, SAP Strategic
Enterprise Management application, SAP portal and SAP Business Information Warehouse component. This
entire project would also integrate the existing human resource and financial packages of Shramik and
Kuber, respectively already provided earlier by SAP. This solution was intended to support ONGC’s major
operations like maintenance, procurement, finance, logistics and would also help in monitoring key
performance parameters.
The project started in 2000 and it went live in 2004. The western offshore business division was one of the
first places where this extensive ERP project was made live. The places which were the hardest like
production and drilling were chosen to go live with first. Hence, the most challenging task was to make the
transition at these offshore and onshore drilling places. The project also involved the transfer of knowledge
about operations of the implemented system to the thousands of users of the system. This transfer of
knowledge was critical to the success of the project and it was done with the utmost care by the SAP
consultants.

Highlights of the process

The project was conceived by core design and engineering team under the aegis of the Chairman of the
ONGC Limited. Best people available from the country were chosen to carry out the task. A lot of emphasis
was put on best practices as the implementation of the project would affect thousands of employees and
would be the core of the business operations. The first business division to go live with the extensive ERP
deployment was the western offshore business division which was headquartered in Mumbai. The transition
was even more challenging at onshore and offshore oil drilling platforms as reports had to generate
accurately by 6 A.M every day and any delay would be critical for business operations. After the initial
success with the western offshore business division, other geographical locations were also added to the list
of extensive ERP deployment zones and by the end of it all around thirteen thousand users were using the
solutions provided by SAP, which was more than 65 percent of the originally estimated user base. The
SCADA system was deployed both in offshore and onshore locations, with 179 onshore servers and 8
offshore servers.
The most important feature to ensure error-free production and sale numbers reporting on a daily basis was
the automation system which was integrated with SAP. The logistical challenge of connecting many sites
across India was also successfully met by the project management team. Such a large scale architecture was
implemented due to many reasons, the primary ones are – a complete facelift of the existing system was
needed to improve the efficiency and maintain the competitiveness in the ever-changing environment, real-
time monitoring of the production and drilling assets across India was required, remote control of the wells in
case of offshore platform and effective decision making by the management team by providing real-time
summarized information.
Post Implementation
The partnership of ONGC with SAP Consulting was a great success. The implementation of ICE was a small
piece of the puzzle ONGC was trying to solve, it was aiming for a complete transformation of its business.
The business process was re-engineered using SCADA project. The main areas of improvement included
accounting, finance, and procurement as the project brought an improved, disciplined and streamlined
approach. The implementation of the new IT platform enabled ONGC to better compete because of the
improved capabilities. The visibility of various operations across different domains was also improved. It
also affected the efficiency of the workers in a positive manner as the new technology was widely and
quickly accepted. A lot of insights was provided into operations by replacing daily end to end operations in
real-time reporting on exploration and production, financial analysis and inventory.
Earlier quarterly reports were generated on which business decisions were taken, all this changed after the
introduction of the new system. Now reports were generated on a daily to weekly basis. A greater
transparency and accountability was brought into the organization by redefining roles and duties. Perhaps
one of the most salient features of SAP implementation was higher visibility of critical operational data to all
the levels of management.
The new IT tool, a new business culture, an in-house leadership had prepared ONGC to explore new
frontiers. Apart from other services of mySAP, ONGC also implemented the employee self-service (ESS)
functionality. The user base expanded to about thirty-six thousand users. This service could be used by the
employees of ONGC to apply for leave, view payment details and submit claims online. The service was
internally called “SAMPARC”.
ADAPTING TO THE CHANGING ENVIRONMENT

Leveraging startups innovation

To leverage the robust startup culture brewing in the country and harness the power of innovative youth,
Ongc launched the startup programme with a fund of 100 crores to come up with solutions to various
problems.
The problem statements entailed:-
1. Finding IT solutions to the IT problems faced such as data formats for transporting data from one
software to another
2. Newer artificial lift methods to produce oil and gas from aging brown fields
3. Developing of a solar cooker to be used in rural and urban landscapes to reduce dependency on LPG

FUTURE CHALLENGES AND OPPORTUNITIES

The persistent low crude oil prices have eroded the profit margin of operating oil and gas companies. It is
going to be a challenge to optimize their operations given the capital intensive nature of the industry. A knee-
jerk reaction for most of the companies was to concentrate their efforts on exploration and drilling activities
hiring the latest fifth generation rigs and very low prices. The production has been stagnated because of
lower market prices.
The government has approved the new Hydrocarbon exploration licensing policy. It provides single license
to explore conventional and unconventional oil and gas resources. There will be a uniform licensing system,
for oil, gas, methane, shale, etc which will cover all hydrocarbons, under a single license and policy
framework. The profit sharing model with contractors has been modified to revenue sharing model, which is
more profitable for the government. The bidding process now can take place all round the year. The
government hopes that with this reduced intervention, more capital can be brought in and newer basins can
be put for production given the competitiveness brought in. Overall this is in line with the idea of reducing
our import dependence on crude oil.

References:
1) Cases in Strategic management by Mital
2) Public Sector Reforms in India: A Case Study of ONGC By A. B. Singh
3) Mackenzie: Corporate Restructuring project report
4) Business Process restructuring report by ABB & SAP