BornbayOil Industries Ltd :

Cortsumer Products Division

n April 1990, Harsh Mariwala, the head ofthe consumer products divisionofBombay
Oil, was revi8wing the draft proposal for the second stage of business restructuring in
Bombay Oil. The company was about to take significant decisions to reorganise itself
to meet the cha~1ging needs in the market. The decisions were going to affect the Bombay
Oil's corporate strategy, as well as the consumer products divisional strategy. Reorganisation
had surfaced because of the changing market demands, as well as due to the growth of the
group and family lineage. Harsh, being the senior entrant in the business among his
generation of cousins, was directly concerned about any decisions which would change the
complexion of the business.
The story of Bombay Oil began way back in 1862, when Kanji Moorarji travelled to
Bombay from Kutch and started a modest business oftrading spices and other goods from
Kerala. Much later, in the early part of the 20th century, he inducted his young nephew,
Vallabhdas Vasanji into his business. Together, they built up expertise in the export of
pepper and -ginger to the European continent. Other agricultural commodities, mainly
copra and coconut oil, were added on in time. Their expertise in the pepper trade gave the
family the appellation of'Mariwala' (marimeans pepper in Gujarati). Vallabhdas Vasanji
was thereafter known as Vallabhdas Mariwala.
.
Vallabhdas Mariwala had four sons, who in 1992 were in the age group of 55 -70 years.
All of them were active in the business and other philanthropic
activities. The eldest,
Charandas Vallabhdas Mariwala (72) was the chairman and managing director of Bombay
Oil Industries Limited. His younger brothers, Hansraj (60), Jayasinh (59) and Kishore (57)
were on the boards of directors of Bombay Oil Industries Ltd. and its subsidiary companies.
This case has LCe).. written by Mr Jeswant Nair and Mr Shyam Sutaria with the support of
Mr S Balachandrun and Dr Nirmal K Gupta under the overall guidance of Dr M B Athreya.
This case is a part of a case-writing project which was financially supported by ITC Limited.
It is an attempt at describing the managerial context only for the purposes of analysis and learning.
@ 1993, Management Development Institute, Gurgaon (India).

Bombay Oil Industries Ltd : Consumer Products Division

39

Vallabhdas Mariwala believed in the value oHormal education. So, he ensured, that his
sons got the most contemporary form of education that made them believe that the future
was in manufacturing and value addition. Thus in 1947, they set up Bombay Oil Industries
Ltd., which sought to convert their traditional buying strengths in the commodities area to
value-added manufactured products and intermediates. The shares of Bombay Oil were
held within the Mariwala family.
Between 1947 and 1971, Bombay Oil Industries Limited set up four manufacturing
facilities, which are as follows.

1. A plant at Sewree, Bombay, to extract coconut oil from copra.

2. A refinery at Mazgaon, Bombay, to refine vegetable oils.
3. A chemical plant at Bhandup, Bombay.
4. A plant near Cochin, Kerala, for spice extracts.
The plants based at Sewree and Mazgaon produced bulk coconut oil and refined
vegetable oils from groundnut, coconut and safflower. The chemical plant at Bhandup
manufactured fatty acids from vegetable oils while the plant near Cochin manufactured
extracts from spices and exported its entire produce to Europe and North America. In
1980-81 Bombay Oil divisionalised to create three profit centres-the consumer products
division, the fatty acids and chemicals division and the spice extracts division.
Harsh Mariwala, the only son of Charandas among four children, -joined the business in
1971 at the age of 20. He was subsequently

joined by his cousins

Sanjay and Ajay, sons

of Jayasinh; Madhav, son of Hansraj; and Rajendra, son of Kishore, through the eighties.
Exhibit 3.1 gives the family lineage.
Kanji Moorarji-Vallabhdas
(Uncle-Nephew

Charandas
Mariwala
(b.1921)

(Vasanji) Mariwala
Team)

Kishore
Mariwala
(b.1935)

Hansraj
Mariwala
(b.1932)

Jayasinh
Mariwala
(b.1933)

Harsh
(b.1951)
Joined the
business
in 1971

Sanjay
(b.1960)
Joined the
business
in 1981

Ajay
(b.1963)
Joined the
business
in 1988

Madhav
(b.1960)
Joined the
business
in 1986

Mohan
(b. 1967)
Exhibit 3.1

Lineage of the Mariwala

Shyam
(b. 1967)
Family

Rajendra
(b. 1962)
Joined ilie
busin'"
in 191:V

Ravi
(b; 1966)

40

Cases in Stwtt:{;icManagement

The company's headquarters were located in the heart of the commodities market, at a
place called Masjid in Bombay, alongside the Bombay Port. The locale was characterised
by narrow lanes, huge godowns, dilapidated buildings, street-side vendors, shops and
pavement-slums, all juxtaposed cheek-by-jowl. Alongside were trucks, handcarts, hordes
of people and traffic jams. In the office, one could find dhoti-clad employees with work
stations consisting of gaddhis, takiyas and pedhies, usually for sitting cross-legged.
Harmonizing with this office environment were also tables, chairs and cabins which could
hardly be called contemporary even in those days. These were occupied by the Mariwalas
and the few trouser-clad gentry around. Harsh would rather have liked a modern office in
pleasant surroundings. Over the years and well into the eighties, though the Bombay Oil
headquarters remained at Masjid, he had transformed the space that his business occupied,
into a modern, contemporary office facility.
CONSUMER PRODUCTS BUSINESS

The consumer products business grew out of the two factories at Sewri and Mazgaon,
Bombay. These factories produced raw oils and refined oils, respectively. The produce
from these factories went either to industry for various applications, or to middle men who
bought in bulk and later sold to retail outlets. Harsh Mariwala tobk over this business in
the mid seventies. From a predominantly bulk sales business he pursued an aggressive
strategy of small packs, brand building and retail distribution. He successfully created the
retail market for 'Parachute' coconut oil and 'Saffola' - a refined safflower oil.
HarshMariwala's

Entry

Harsh joined the business in 1971, soon after he completed a Bachelors degree in Commerce
from Sydenham College, Bombay. In keeping with his family tradition, he married early,
in his mid twenties. In 1992, his daughter and son were attending a prestigious school in
Bombay..Archana, his wife, was a voracious reader with an active interest in environmental
issues. Harsh lived with his parents on one of the spacious floors of a well-appointed
building in South Bombay. The other floors were occupied by his uncles.
In addition to his role as the chief executive of the consumer products business, Harsh
was on the boards o( directors of Bombay Oil and its subsidiaries. He was also a member
of the managing committee of the Indian Merchants' Chamber and a member of the Young
Presidents' Organisation.
Harsh believed in keeping himself physically fit. He enjoyed long walks and swimming
and played golf over the week-ends. He vacationed with his family at least twice a year, and
enjoyed listening to Indian classical music.
Though his formal academic education was modest, Harsh kept himself abreast through
intensive reading of management literature, persuading his managers to do likewise and
even discussing emerging trends and practices with them. He was open to new ideas,
experimentation
and learning. Perseverance and a strong belief in the power of people
amplified his role performance.

Bombay Oil Industries Ltd : Consumer Products Division

41

Harsh had nurtured a desire to go to a business school overseas. His father felt that the
biggest learning was hands on rather than in some "fancy business school". As Harsh
started learning about the business, he got more and more involved in it. In fact, Harsh
later said,
"In hindsight I think my father was right in not sending me to a business school. Had I gone
to a business school. I may have corne back with theoretical notions about management and
would immeclliately have run into conflict with the way things were being done then. The
outcome could have been serious. That I had to learn the business virtually by the seat-of-mypants gave me a first-hand knowledge of how traditional Indian businesses are run and the
psyche of people who were associated with such businesses. That learning could not have
taken place had I gone to a business school. Worse, the organisation of people that existed then
would not have been able to adapt to what my ideas may have been. The change in thinking
and approach, as it evolved, carne in small incremental steps hardly perceivab 1eas it happened.
But if! were to compare then and now, there has indeed been a dramatic change. Iquickly learnt
that if I had to influence the change process, I had to, in a way, live with the two opposing
realities of tradition and contemporariness, until time would have helped to make these
realities converge."
Harsh started his career with Bombay Oil without a designated portfolio. He spent his
early work days travelling to various businesses, factory locations and markets observing,
asking questions, or sometimes doing tasks; but all the time absorbing information for
future use. He took time. to travel into the interior markets, where he studied the
distribution and retailing operations of vegetable oils as it was being done then. This area
of business amongst all the others fascinated him. He observed, that there were very few
brands of vegetable oils, and that, vegetable oil for edible ~nd other purposes were being
dispensed out 'in loose' from larger tins, by retailers to consumers. He saw the distinct
possibility of adulteration and spurious quality. He started thinking about how Bombay Oil
could make a dent and create a niche for itself in this rather disorganised kind of market
place. Around him he saw giants like Hindustan Lever, Colgate, Nestle and many others
marketing branded consumer products, which in itself gave these products a certain image
and consumer franchise. He wondered whether edible oils also could be marketed in a
similar fashion.
Creating a Consumer Market
Parachute Coconut Oil
Harsh visualised a national market for small consumer packs of Parachute brand coconut
oil. He imagined it being retailed from any outlet that sold toilet soaps, for instance. He also
understood that to build such a distribution network, it would take years of effort. But he
knew that at the end of this, he would have a network ready to launch a host of other
consumer products. This vision made him advocate the thrust to small packs more
vigorously, rather than chase the market for 15 kg tins and the sale of bulk oil.
By inclination and choice) Harsh decided in 1973 to focus on building the consumer

42

Cases in StrategicManagement

products businl!~;'. Harsh started work on developing the small packs business. He invited
an advertising agt..lcy to help him in the positioning and marketing of Parachute. Perhaps,
this was the first time a coconut oil seller in India had tbought of advertising. Coconut oil
had varied uses. In South India, coconut oil was used primarily as a cooking medium.
Elsewhere, it was used as a hair oii and as an oil for body massage. He decided to render
a distinct identity to the brand -'- of purity, clarity and aroma. An image of tradition and
beautiful hair was created to put Parachute across as a desirable product. At about this time,
Harsh recruited his first sales professional, Basutkar, who was a seasoned front-line field
supervisor with Hindustan Lever. He joined Harsh as a sales officer at the head office, later
on to become the sales manager, from where he left the company in 1985. Together, they
went about building and expanding the distribution network of depots, qistributors,
retailers and salesmen as the market for Parachute grew from region to region. Their initial
focus was on the West India through the years until 1980, followed by South and North
through the period 1980-85 and much later in the East which was the stronghold of another
brand - 'Shalimar'. Parachute entered the Eastern market with an aggressive strategy,
priced 5% lower than Shalimar with near zero contribution levels. This strategy was
continued through the late eighties. Since then, Parachute had even been able to price itself
at a premium of2% over Shalimar. By 1991, it had gained a market share of32% in the East.
Competitive market share data are given as Exhibit 3.2.
In Harsh's scheme of things, he wanted Parachute to be the undisputed No.1 brand,
nationally and in each state. If this meant that he had to wait long for it to begin contributing
to the bottom-line, he was willing to wait. Not many agreed with this approach. It was a
commonly-held view that if Shalimar, as the market leader in the East, was itself selling
at low prices and low contribution levels, Parachute would have to penetrate the market
at prices lower than Shalimar. To add to that, it would also have to incur higher distribution
and advertising costs. Parachute being able to make a substantial presence even after
incurring higher costs was, to many minds, a doubtful strategy.
Saffola Edible Oil
As the national distribution network for Parachute was being created, he saw an opportunity to extend nationally the other brand 'Saffola'- a safflower-based edible oil which had
a small market in Bombay. It had become known in scientific fora that safflower oil had
cholesterol-reducing properties. An advertising agency was invited to build a health
education campaign, in order to promote the sale of Saffola countrywide, as it was
necessary to educate the public about high cholesterol and how Saffola helped to reduce
the cholesterol levels. It was the first time that an edible oil had taken a health platform,
and Saffolawas promoted aggressively through doctors. Literature on heart care, medical
and cardiac conferences and heart-care camps were used as fora to create awareness of
Saffola's cholesterol-reducing properties. Recipe books on cholesterol-reducing diets were
freely circulated and mailed to potential users. From a very small market demand for
safflower oil, this two-pronged strategy of mass education and doctor detailing, virtually
created a captive health oil segment for Saffola. It was, even in 1992, the only edible oil
prescribed by doctors. While all other cooking oils were price elastic, Saffola could
command a premium and had built up a strong franchise of loyal consumers.

Brand

1990

1991

Parachute

42%

50%

Shalimar

15%

14%

Cocoraj
Tatas
Others
Eastern Region
Parachute
Shalimar
Tatas
Others

4%
13%
26%

7%
9%
20%

20%
41%
16%
23%

32%
43%
14%
11%

Market Leader in north,

south and w: t regions.
Market Leader in
east region.

Source: ORG Data

Exhibit 3.2

Market Share: Branded Coconut Oil

Vision of a New Business

By about the late seventies, the consumer products business had outgrown the other
businesses within Bombay Oil. Harsh started thinking about the future. He had dreams of
the consumer products business becoming a major force in the Indian Market; of being
a true consumer products company rather than a marketeer of vegetable and refined oils;
of being a modern organisation reputed for its quality products and its management
processes.
In those days, Bombay Oil was a typical owner-run enterprise with no clear-cut role
definitions and accountabilities drawn up amongst the various members of the family.
Each of the family members had built up experience and expertise in one Orthe other areas
of technology or commerce. Decision making, by and large, meant talking to the other
members of the family and relying on the expertise that was available within the family.
Harsh felt that he needed the freedom to build his part of the business the way he felt most
effective. He believed that each family member should have the autonomy to run his
business so long as there was accountability for results.
Quite to the contrary, there were no defined methods in which funds and other resources
were allocated to various businesses. J..ittleindependence was available to any ofthe family
members to take initiatives on their own in the areas of policy-making, organisation and
culture building or corporate image building. These were areas of collective responsibility.
For instance, Harsh believed that the key to development and growth was people. But in
order to attract professionals, he needed to build a corporate image and a culture where
people could stay and contribute. Simultaneously, he would need to pay salaries comparable with the leading companies in industry. Any such attempts on his part "lA/QuId
conflict
with the staffing policies that the other businesses within the group followen. This meant
that he had to hold himself back from doing what he felt was necessary to do.

- - - -- - - - - -

~=-~

Bombay Oil Industries Ltd : Consumer Products Division

Brand

1990

1991

Parachute

42%

50%

Shalirnar

15%

14%

Cocoraj
Tatas
Others
Eastern Region
Parachute
Shalirnar
Tatas
Others

4%
13%
26%

7%
9%
20%

20%
41%
16%
23%

32%
43%
14%
11%

43

Market Leader in north,

south and 'Nt t regions.
Market Leader in
east region.

Source: ORG Data

Exhibit 3.2

Market Share: Branded Coconut Oil

Vision of a New Business

By about the late seventies, the consumer products business had outgrown the other
businesses within Bombay Oil. Harsh started thinking about the fu.ture. He had dreams of
the consumer products business becoming a major force in the Indian Market; of being
a true consumer products company rather than a marketeer of vegetable and refined oils;
of being a modern organisation reputed for its quality products and its management
processes.
In those days, Bombay Oil was a typical owner-run enterprise with no clear-cut role
definitions and accountabilities drawn up amongst the various members of the family.
. Each of the family members had built up experience and expertise in one or the other areas
of technology or commerce. Decision making, by and large, meant talking to the other
members of the family and relying on the expertise that was available within the family.
Harsh felt that he needed the freedom to build his part of the business the way he felt most
effective. He believed that each family member should have the autonomy to run his
business so long as there was accountability for results.
Quite to the contrary, there were no defined methods in which funds and other resources
were allocated to various businesses. J..ittleindependence was available to any of the family
members to take initiatives on their own in the areas of policy-making, organisation and
culture building or corporate image building. These were areas of collective responsibility.
For instance, Harsh believed that the key to development and growth was people. But in
order to attract professionals, he needed to build a corporate image and a culture where
people could stay and contribute. Simultaneously, he would need to pay salaries compa- .
rable with the leading companies in industry. Any such attempts on his part 1'\Touldconflict
with the staffing policies that the other businesses within the group followen. This meant
that he had to hold himself back from doing what he felt was necessary to do.

44

Cases in StrategicManagement

This dilemma led him to an exploration into the organisations and people. He read
widely, and attended seminars and training programmes both in India and abroad. He
interacted with senior professionals in industry. He spoke to CEOs of other familymanaged companies. He read case histories of family-owned companies and learnt the
reasons why some of them failed and some of them succeeded during different generations.
The media was agog with family splits amongst the Shrirams, Dalmias, Kamanis and other
business families and the acrimony associated with such splits. Thinking about these
experiences convinced him that he should go through a process of creating autonomy and
accountability for himself, the other family members and the other businesses without
disturbing the relationships within the family. In fact he felt, that there were ways in which
the entire family could be instrumental in participating as active partners in the change
process. But he knew, this would involve considerable time and effort.
DIVISIONALISA TION
The first initiative of change came with the divisionalisation
in 1980-81, when three
distinct profit centres were created, i.e. consumer products division, fatty acids and
chemicals division and spice extracts division. Harsh took over as the head of the consumer
products division with the hope that this first step would in some way help realise some
of his dreams.
Changing Product Mix
Through the eighties, Saffola and Parachute consolidated the position of the consumer
products division. Also, during this period the bulk business in raw and refined oils that
Bombay Oil was traditionally into was virtually withdrawn. For instance, in 1975 out of a
total volume of 2940 MT (Metric Tonne) of raw oils, Parachute coconut oil in small packs
constituted around 22% by volume. By 1980, out of a total volume of 3552 MT, Parachute
coconut oil in small packs constituted around 71 % by volume. By 1985, the bulk coconut
oil business had been altogether replaced by the consumer packs business, to register a
volume' of 5052 MT. The monthly sales mix of Parachute from 1975 to 1992 is shown in
Exhibit 3.3.
(in Metric Tonnes)
1975

1980

15 kg (Bulk packs)
Retail pack (Tins)
Retail packs (HDPE)

200
45
-

85
211

Total:
Annual sales

1985

1990

1991

1992

240
181

190
777

260
838

242
1030

245

296

421

967

1098

1272

2940

3552

5052

13,176

15,264

11,604

Exhibit 3.3 'Parachute' Coconut Oil: Sales Per Munth

Bombay Oil Industries Lid : Consumer Products Division

45

This happened in the refined oil market as well. In 1975, refined oils, which were
primarily sold in bulk, constituted a volume of 2556 MT. By 1980, bulk refined oils and
Saffola sold a volume of 5040 MT. By 1985, the consumer pack business which' was far
more profitable had established ap.preCiable volumes and contributed 68% of the total
refined oil business. The greater accent on consumer packs also meant a phased withdrawal
from the bulk oil business, resulting in a temporary drop in volumes from 5040 MT in
1980 to 3408 MT in 1985 (Exhibit 3.4). During the fifteen year period between 1975 - 90,
in spite of the change in product mix, value turnover of the raw oil/consumer business
had more than doubled every five years from Rs 6.28 crore in 1975 to Rs 14.03 crore in 1980
to Rs 32,93 crore in 1985 and to Rs 80.73 crore in 1990 (Exhibit 3.5).
(in Metric Tonnes)
1975

1980

1985

134

312

106

13
66

25
83

Other refined oils (Bulk packs)

Saffola
15 kg (Bulk packs)
Retail packs (Tin)

1990

1991

1992

30
120

24

25

20

28

334

367

403

Retail packs (HDPE)

Launched

420

284

358

392

423

2556

5040

3408

4296

4704

5076

465*

221
2652

180
2169

Sweekar
Retail packs (HDPE)
PM
PA
*

213

Total
Annual sales

late in 1989
Exhibit 3.4

Refined Oil Sales Per Month

(Rs in crore)
1975

1980

1985

1990

6.28

14.03

32.93

80.73

2.69

4.95

6.81

13.41

0.15

0.99

2.61

6.13

0.76

1.16

1.41

2.93

Total sales

9.88

21.130

43.76

103.20

Profits

0.03

0.02

0.70

10.75

Consumer products
division
Fatty acids and
chemicals division
Spice extracts
division
Others

Exhibit

3.5

Sales

and Profits

46

Cases in Sllategic Management

By 1990, Parachute had registered a volume turnover of about 11604 MT and Saffola
about 4296lvff to account for a combined turnover ofRs 80.73 crore. In retrospect, perhaps
the decision to change the product mix was most significant in improving the overall
business performance of Bombay Oil. This would appear to be more true if the fin.ancial
figures

pertaining

to the period

between

1985

90 were to be analysed.

From a profit of 70

lakh on a turnover of Rs 43.76 crore, Le. a margin of 1.6% in 1984-85, the margin had
improved to 8% on an average over the three year period 1987-90. In 1989-90, Bombay Oil
achieved a Rs 10.75 crore profit on a turnover ofRs 103.20 crore. The consumer products
business was contributing substantially both to turnover and profits.
Plastic Packaging
The marketing of vegetable oils in consumer packs was traditionally in tins. But with the
increasing cost of tin sheets it appeared that tins would no more be the most economic
medium for packing. Plastics seemed to be the answer. Harsh virtually pioneered the
movement from tin packs to HDPE packs in the vegetable oil segment. In the early eighties,
Harsh recruited Mr Bindumadhavan as a purchase manager. Bindumadhavan
already had
a background in plastics packaging. Together, they spearheaded the changeover in a
deliberate and planned manner. The change to plastics meant a reduced cost structure and
also gave the consumer an aesthetically designed and user-friendly product. Changing the
profile of a product in those days was not exactly an easy proposition. The trade, mainly
retailers, resisted the idea of plastic packs. They were quite content with the traditional
packs and believed that consumers had a strong preference for tin packs. Alongside, were
problems of the plastic packs being bitten into by rats. Experimentation
with the pack
design eliminated this problem. The reduced cost structure on plastic packs helped push
the product through trade incentive schemes. It also helped the company to go in for a
heavy burst of sustained advertising to create the consumer pull. Consumers had to be
educated on the benefits of plastics packaging at a time when plastics were just being
introduced as a medium of packaging. TV commercials, press advertisements and other
consumer promotion schemes were used quite aggressively. Conversion from tin to plastic
packs was followed through as a vigorous strategy by tracking the tin to plastic conversion
rate and building employee reward schemes around the conversion targets. By 1990, over
85 % of the packs for Parachute were plastics, with tin packs doing business in some parts
of North India through the winter months. Close on the successful conversion of Parachute
to plastic packs, Saffola too followed suit.
.
Product Failures

Everything appeared to be going well for the consumer products division on the surface.
However, the decade of the eighties also saw some failures of products in the market place.
Harsh wanted to diversify and widen his portfolio of consumer products. He did not want
to be over-reliant on Parachute and Saffola in the long run. In 1981, a tooth powder by the
brand name 'Whistle' was launched, in select markets. The tooth powder market was
dominated by Colgate, with a host of small regional brands coming way behind. In
launching Whistle it was hoped that shares could be grabbed both from Colgate and the

Bombay Oil Industries Ltd : Consumer Products Division

47

local brands. Pricing was competitive, but Bombay Oil had not quite reckoned with
Colgate's intrinsic strength in the market. A distinct image was not built for W"istle. There
were also frequent changes in quality based on inadequate market feedback. The feedback
that came from the field seemed to be different from market to market. Changes in the
product were not well researched. The volumes never really grew. The tooth powder was
withdrawn from the market in 1983.
A groundnut oil under the brand name of 'Parachute Filtered Groundnut Oil' was
launched in select markets in 1984. Though the product created a small market for itself,
it could not become a truly national brand. Significant investments in terms of advertising
and promotion were not available for this brand and the margins were always under
pressure. Since the volumes were not substantial and the markets were very localised, this
brand was also withdrawn in 1986.
Packaged pulses under the brand name of 'Parachute' were also launched in Bombay in
1984. This product did not last very long in the market, as the retailers resisted the entry
of this brand. Selling loose pulses was far more profitable to them than selling packaged
pulses.
Why did all these new products fail? Was umbrella branding the right strategy? Did all
the new products receive the necessary resource backup? While some of these questions
were being echoed, Harsh summed up these failures. He said:
"We can always attribute these product failures to some phenomena outside of ourselves. But
I think the truth is the poor quality of thinking we managers then did. There was inadequate
research, processes and systems, and little attention was given to_product development and
quality. We were not willing to commit big resources behind any of these products because,
I suspect, we were not sure of our thinking. Just as in the past when we.moved over from the
bulk business to the consumer business, what we needed was a major transformation in the
organisation's thinking, to begin looking at products even outside the oil trade. We were
caught napping."
These product failures, each close on the heels of the other, led the consumer products
division into a three year hibernation, at least as far as new products were concerned.

Skill Gaps
The organisation seemed to lack in very many critical skills which acted as obstacles for
growth. For instance, all the new products wer.e unleashed into the market without
sufficient product development work going in. In fact, there were no departments or sets
of people devoted to the task of product development, understanding the technologies and
translating them into manufacturing skills. Quality was not perceived as an end in itself
but was left more to chance. It also reflected the mood that generally prevailed in the
country where pricing was more important than quality or value for money. Here again,
there did not exist a department to inspect or assure quality of either the inputs or the
finished products.
Except for the few top management personnel heading manufacturing, firunce, marketing and raw material buying, who were either inducted or promoted from within, through

48

Cases in S""::f:giCManagement

the mid 80's, the rest of the organisation was devoid of specialist skills in various functional
streams ofm;"~":.igement. The structure of the organisation was built around the skills of the
few top managers without regard to any structuring logic. A middle management level
seemed altogether absent. Compounded with this thin executive staffing was the inability
of the compa'lY to retain its few top management personnel. As a result, long periods of
improper and inadequate staffing at the top management also prevailed. While the field
sales organisation was operationally strong, the rest of the organisation seemed to be
limping along from one crisis to another.
Supply Problems
With the growth in volumes, manufacturing capacities began to come under severe stress,
often resulting in loss of sale. Around 1986-87 the volumes of Parachute coconut oil being
sold crossed the 500 MT per month mark, which was the capacity of the factory at Sewree.
The strategy then was to rely on out sourcing to bridge the gap. The bottlenecks were not
only in terms of the extraction capacities, but were also in terms of filling and packing
where the number of pack units had grown to about 2.5 million p.m. Here again, out
sourcing for filling and pack~ng operations was adopted. Out sourcing as an approach was
not so much a consequence of deliberate thought, but emerged more as a measure to hedge
the paucity of funds for investments in plant and machinery.
In the meanwhile, Saffola seemed to have a problem of a different nature - one of
inadequate availability of raw materials. Safflower was a crop grown mainly in the
Marathwada region in Maharashtra. Most of the produce was milled locally in small units
for local consumption. What was available for sale changed hands through many intermediaries, who also indulged in hoarding and speculating. The vagaries of supply meant that
it was not always possible to meet consumer demand. This was not only true for safflower
oil but was also true for all other oil seeds and oils. Oil seed production had barely gone
up from about 5.4 in 1955 to 13.9 million tonnes in 1990, with the area under cultivation
just about doubling from 10.9 to 20.5 million hectares. Meanwhile, the population had
grown fI:om around 400 million to over 900 million by 1990, leaving a large unsatisfied
demand for vegetable oils for both industrial and human consumption.
CHANGING COMPETITION

The Government of India attempted to bridge the demand-supply gap through imports,
whenever foreign exchange reserves permitted. As a long term measure, the Government
of India set up a Technology Mission for Oil, in 1986, which encouraged corporations to
move into the arena of agro development. The National Dairy Development Board and ITC
Ltd., Calcutta bogan extensive work in the agricultural development of oil seed crops.
NDDBwas a corporation, set upby the Government ofIndia in 1967 to develop milk cooperatives in and around the Mehsana district in Gujarat. With funding from the United
Nations and the Government ofIndia, NDDBhad done pioneering work in making available
wholesome, pastuerised milk and other milk products all round the year. NDDB was
entrusted with duplicating this model in many other states of the Indian Union which later

Bombay Oil Industries Ltd : Consumer Products Division

49

on began to be called 'Operation Flood'. From a situation of shortages through the period
until the seventies, hygienic milk in consumer packs had become freely available, at
reasonable prices, almost all over India. Middlemen who earlier controlled milk prices and
distribution had virtually been el~minated. In 1986, NDDB was asked by the government
to repeat the co-operatives' model of development, in increasing cultivation and supply of
high quality oil seeds,
On the other hand, lTC, - the Indian offspring of the British American Tobacco
Company, U.K. - diversified rapidly into areas other than cigarettes, like hotels, paper,
packaging and agro-technology. It floated a new company called ITC Agro Tech, in the late
eighties, concentrating on biotechnology, agriculture extension work in oil seeds, trading
and marketing of branded edible oils. In a fairly short time, ITC Agro Tech had built an
extensive farm network for the cultivation of sunflower crop and simultaneously launched
its brand of sunflower refined oil called 'Sundrop'. Bombay Oil like mar.y others in this
traditional business had done very littie work in building assured sources of supply.
NDDB launched under the umbrella brand name - 'Dhara' a range of refined and filtered
vegetable oils in tetrapacks. Dhara was priced lower than all the competing brands in a bid
to peg down the price-escalations that were taking place in the market both for branded and
loose oils. For instance in 1992, when Saffola sold at around Rs 73/-'per kg, sunflower oil
brands sold at Rs 50/- and groundnut oil brands sold at around Rs 65/-. Dhara groundnut
refined oil sold at Rs 50/- and Dhara groundnut filtered oil sold at Rs 39/- for comparable
pack sizes. NDDB was also simultaneously involved in test-marketing a range of other oils
such as mustard, sunflower and palm oil under the Dhara brand name, in tetra-packs,
through 1992. NDDB was also reportedly setting up a network of oil refineries and filling
stations with the objective of making good quality cooking oils available at prices lower
than other equivalent brands. NDDB through its bulk buying interventions both globally
and nationally hoped to control market prices of oil-seeds and oil.
The conventional
technology used in the refining of edible oils had batch-mode
processing. Improved efficiency and quality of refining had become available with the new
technology of continuous refining, and ITC Agro Tech had launched their brands ofrefined
oils using this technology. A new standard of quality had consequently emerged - a near
colourless, odourless oil. Bombay Oil found itself unprepared to meet these new challenges. lTC's Sundrop became a market leader in a period of two years, Le. 1~89-91 by
expanding the market for consumer packs and also by taking away shares from other refined
oil brands, significantly from the packed refined groundnut oil segment (Exhibit 3.6).
Meanwhile, the consumer products division of Bombay Oil launched its own sunflower
refined oil under the brand name of 'Sweekar' late in 1989, at about the same time when
Sundrop was launched. Tamil Nadu Agro was already a significant marketer of sunflower
refined oil under the brand name 'Sunola' in Tamil Nadu. Sunola went national. Lipton
also started aggressively marketing 'Flora' - a sunflower oil brand that was marketed by
its sister company Hindustan Lever earlier. Many other big names had also begun to show
interest in sunflower oil. The refined sunflower oil segment and more particularly the
refined oils market, which was lying dormant, had suddenly become highly competitive
with many big names in it. 'Postman', the refined groundnut oil marketed by Ahmed Oil
Mills was the market leader in the mid-eighties in the consumer packs segment. It had given
way to ITC Agro Tech's 'Sundrop' by 1991.

50

Cases in StrategicManagement
Brands

1989-90

Groundnut

Dalda Refined
(Liptons)
Crystal (ITC)
Postman (Ahmed Oil)

6%

5%

5%
10%

2%
8%
2%
10%
5%
4%

35%

Sunflower

Sunola (Tamil Nadu Agro)

Sun drop (ITC)
Sweekar (Bombay Oil)
Flora (Liptons)

Safflower
Dhara
All Other Brands:

Saffola (Bombay Oil)

Range of edible oils

2%
7%
3%
4%
9%
15%

(Over 25 local brands)

39%

Exhibit 3.6

1990-91

9%
20%

Market Share: Refined Edible Oil Brands

CONCERNS AT BOMBAY OIL: EARLY 90s

Refining Capacities
'Sweekar' built up volumes from an average of around 39 Metric Tonnes per month in the
year ofits launch to about ~21 Metric Tonnes per month, in 1991. With Bombay Oil having
two edible oil brands by 1990, Le. Saffola and Sweekar, there were major constraints in
refining capacity. Saffola was refined at Bombay Oil's Mazgaon Plant at Bombay. This plant
had a manufacturing capacity of 500 MT per montl:1. The combined requirements of Saffola
and Sweekar involved a refining capacity of around 700 MT per month in 1990-:-91 with
projected growth rates of 25 % annually. A part of the refining requirement was being met
by a sub-contractor. This approach of out sourcing could not be continued indefinitely. The
problems of quality, capacities and refining efficiencies needed urgent attention with little
investments having gone into upgrading the plant, machinery and capacities in the past
decades. It seemed as if Bombay Oil was waking up rather late to this reality (Exhibit 3.7).
Corporate Image
One other problem that seemed to be bothering Bombay Oil, and more particularly
impacting the consumer products division, was the issue of corporate image and its
inability to attract talent. The company's products seemed to be fairly well known to the
consumers, but their association with Bombay Oil was very weak. A survey conducted
amongst working executives in Bombay in March 1990, revealed that management
professionals would not consid~r Bombay Oil an attractive place to work in. Most of the
commonly held perceptions and stereotypes of family-owned companies seemed to be
associated with Bombay Oil.

Bombay Oil Industries Ltd : Consumer Products Division

51

(Rs in lakh)

Plant and
Machinery
Gross Bloc**
1974 - 75
1975 - 76
1976 - 77
1977 - 78
1978 - 79
1979 - 80
1980 - 81
1981 - 82
1982 - 83
1983 - 84
1984 - 85
1985 - 86
1986 - 87
1987 - 88
Ju!' 88 - Mar '89
1989 -1990

83
89
111
125
145
183
230
241
245
252
283
323
337
406
434
526

Sales

733
869
1255
1595
1809
2113
2078
2111
2823
3964
4376
4104
5618
7571
8613
10,320

Advertising
and Sales
Promotion*

3.0
4.0
7.0
6.0
11.0
25.0
34.0
25.0
16.0
38.0
110.0
110.0
113.0
156.0
3,41.00

* Almost the entire ASP spending was incurred by the Consumer Products Dividon.
** Out of a total investment of Rs 443 lakhs to plant and machinery over a 15 year period between
1975-90, the consumer products business spent around Rs 40 lakh on installing automatic filling
lines.

Exhibit 3.7 Sales, Gross Block, ASP

The location of Bombay Oil's headquarters, placed as it was in a crowded, commodity
market place, seemed to be an eye-sore and contributed to the low imago. The fact that
Bombay Oil had no track record as an employer of professionals was another contributing
factor. It was a 'Catch 22' situation.
Changing AsPirations of Mariwala Family
Meanwhile, Harsh's cousins who had by then been initiated into the group's activities, had
begun to take over the various other .businesses within the Bombay Oil fold. They often
exchanged and compared notes on the issues facing Bombay Oil.
Their experiences were somewhat similar to what Harsh had gone through, though in
varying degrees. All of them shared the common perception that business as was done in
the past was no more relevant. They individually and collectively believed in the virtues
of professional management. They, each had dreams of becoming induft~ialists,
and

wanted to createinstitutions, using the businesses that they inherited or set u. as starting
points.

52

Cases in S!. ;,;,,~gicManagement

Harsh was IJ..l.zled over several questions. Where should he begin? Where 'Yas he going
to find the r\~&,}J.J.i4es
to begin the second stage of organisation transformation? How would
he go about i t'w'Iflcmenting the needed changes? He was restless. He once again had to bring
into sharp f8('1.:;,the issues of autonomy and accountability.

Questions for the case' Bombay Oil Industries Ltd: Consumer Products Division'
Q1. Using value-chain analysis, describe the resources of Bombay Oil Mills.
Q2. Discuss Strategic, functional and operational capabilities in the context of the case
Q3. 1nthe context of the case explain how competition and the changes in the linn's
environment affect the value of resources.
Q4. Which activities of the organization are a result of deliberate strategies and which are
emergent?