BUSINESS PROCESS REENGINEERING OF

PUBLIC SECTOR UNDERTAKINGS IN KERALA

A THESIS

Submitted by

GEORGE MATHEW
in partial fulfillment of the requirements for the degree of

DOCTOR OF PHILOSOPHY

FACULTY OF MANAGEMENT SCIENCE

ANNA UNIVERSITY
CHENNAI 600 025

JUNE 2016
 ii

ANNA UNIVERSITY
CHENNAI 600 025

CERTIFICATE

The research work embodied in the present Thesis entitled “BUSINESS

PROCESS REENGINEERING IN PUBLISC SECTOR UNDERTAKINGS

OF KERALA” has been carried out in the Department of Management, TocH

Institute of Management, Ernakulam. The work reported herein is original and

does not form part of any other thesis or dissertation on the basis of which a degree

or award was conferred on an earlier occasion or to any other scholar.

I understand the University’s policy on plagiarism and declare that the

thesis and publications are my own work, except where specifically acknowledged

and has not been copied from other sources or been previously submitted for

award or assessment.

GEORGE MATHEW
RESEARCH SCHOLAR

Dr. RAJASEKAR S Dr. SULPHEY M M

JOINT SUPERVISOR SUPERVISOR
PRINCIPAL PROFESSOR & DEAN
Management Management
AKSHAYA Institute of Management TKM Institute of Management
COIMBATORE KOLLAM
 iii

ABSTRACT

In this modern competitive business environment, organizations are

making all efforts to conduct business in most efficient and effective way by
adopting advanced managerial techniques and technologies, suitably tailored
for their organization. Business Process Reengineering is an approach of
making fundamental and drastic change in every business process, to achieve
dramatic improvement in business performance. Public Sector Undertakings
(PSUs) play an important role in the development of the country especially a
developing country like India. It is a paradox, however, that poor performance
acts as a bug causing closure of many PSUs and leading many more to the
verge of closure especially at the State level; thus increasingly losing their
rationale for survival. Such misfiring of PSUs can lead to a serious drain in
the nation’s economic resources.

The dubious situation necessitates a study on the need for and scope of
implementing a managerial tool like Business Process Reengineering (BPR)
in India’s PSUs. This will help in bringing drastic performance improvements
gainfully adopted by the organizations in developed countries, where Total
Quality Management (TQM) is replaced by latest techniques like BPR,
Business Process Management (BPM) and Knowledge Management (KM).

The present study proceeded with the objectives of:

1. Evaluating the current performance and locating the major variables
affecting performance of PSUs in Kerala,
2. Analysing their financial performance over a period to ascertain the
need and scope of implementation of BPR,
3. Analysing the extent of possible performance improvements (PPI) in
PSUs,
4. Comparing the PPI of State PSUs with Central PSUs in Kerala, and
 iv

5. Assessing the readiness of change among employees for the

implementation of BPR techniques.

The gap between the levels of present performance and the target set
forth in production plan, mission statement etc. for a considerable time
decides the need for performance improvement techniques like BPR. The
study was conducted using reliable and accurate data from 41 SPSUs and two
CPSUs in the State of Kerala.

The study was conducted in four stages. The first stage utilised both
primary and secondary data. While primary data was collected by direct
observation, discussion with employees at different levels etc.; secondary data
was obtained from firm level records of different departments. Factors of PPI
in State PSUs were identified during this phase. In the second phase,
secondary data for the years 2001-02 to 2014-15 regarding financial
performance of the 41SPSUs published by the Bureau of Public Enterprises
of Government of Kerala (GOK) was used. The tools of Net Profit/loss, Net
Profit Ratio, Return On Capital Employed and Altman’s Z-score model used
for predicting financial distress of firms were used to analyse the data. Data
on PPI in 12 identified factors were collected from executives of sample units
making use of a pre-tested structured questionnaire in the third phase. Final
stage of the study was to assess the readiness to change of executives and
workers. The data collected also facilitated comparison of readiness to change
between executives and workers, profit making and loss making units and
between employees of State PSUs and Central PSUs.

The study then analysed the collected data. In the analysis of current
performance of selected PSUs, it was brought out clearly that the
organizations perform poorly, as realised production is much below planned
production and installed capacity. This occurred on account of lack of
production control, obsolete technology and machinery, poor man-power
 v

utilisation, etc. The second phase of analysis established that the financial
performance of most of the organisations were very poor resulting in financial
distress and bankruptcy. In the third stage of study, it was found that the PPIs
in individual factors are of such dimensions capable of describing it as either
‘drastic’ or ‘major’. The comparison between SPSUs and CPSUs revealed
that there is no significant difference between them in PPI. This was
confirmed by applying t-test for testing the significance of difference. Finally,
on analysing readiness to change of executives and workers, both categories
were found to have a high level of readiness to change, and that executives
have a greater willingness than workers. No significant difference was found
in the readiness to change between profit making and loss incurring SPSUs.
It is also seen that readiness to change in SPSUs is more than that of CPSUs.

The study established that though the current performance of PSUs is

poor, there are many factors capable of bringing in drastic performance
improvements. Financial performances of most of the PSUs in Kerala are
pathetic, resulting in financial distress or bankruptcy that necessitates sharp
revival drives. It implies the need for drastic performance improvement, one
of the best method of which is BPR. The third stage established that there is
possibility of drastic or major improvement in 12 factors of Possible PPI. Both
executives and workers are ready for change. So it can be established that
there is need as well as scope for the implementation of BPR in PSUs of
Kerala. Further as CPSUs in Kerala replicate SPSUs in almost all respects,
BPR implementation is a logical necessity for revival of PSUs in Kerala.

The findings of the study have significant bearing on poorly

performing PSUs in a developing country like India. In addition to the
application of BPR in PSUs, the study also contributes towards theory
building, since it has identified certain additional factors of performance
improvement and method of identifying possible performance improvements.
 vi

ACKNOWLEDGEMENT

I wish to record my deep sense of gratitude and profound thanks to my

research supervisor Dr. Sulphey M M, Professor and Dean, Department of
Management, TKM Institute of Management, Kollam, for his keen interest,
inspiring guidance, constant encouragement with my work during all stages, to
bring this thesis into fruition.

I wish to record my deep sense of gratitude to my joint supervisor Dr.

Rajasekar S, Principal, Akshaya Institute of Management, Coimbatore, for his
unstinted support and constant encouragement resulting in successful culmination
of the research study.

I am extremely indebted to Dr. Henry G, Formerly Principal, Fatima Mata

National College, Kollam, for making himself a factor in this study and facilitating
consultations whenever required.

I also thank the Management, Faculty and Non-teaching staff members of

the Allama Iqbal Institute of Management, Trivandrum, for their valuable support
throughout the course of my research work.

Last but not least I acknowledge with immense gratitude the support of my
wife Mrs.Thresiamma Mathew who put up nicely with her husband’s frequent
absence at home on account of the research work. I am also thankful for my
children for enduring their father’s preoccupation.

GEORGE MATHEW
 vii

TABLE OF CONTENTS

CHAPTER NO. TITLE PAGE NO.

ABSTRACT iii

LIST OF TABLES XII

LIST OF FIGURES XV

LIST OFABBREVIATIONS XVI

1 INTRODUCTION 1
1.1 PUBLIC SECTOR UNDERTAKINGS 5
1.1.1 Public Sector Units and Poor Performance: A Brief
Account 6
1.1.1.1 Performance of PSUs in Kerala 7
1.1.2 Industrial Sickness and Restructuring of PSUs 10
1.2 BUSINESS PROCESS REENGINEERING 13
1.2.1 BPR IN INDIA 15
1.3 SCOPE OF THE STUDY 16
1.4 METHODOLOGY 17
1.4.1 Problem Statement 17
1.4.2 Objectives of the Study 18
1.4.3 Hypotheses of the study 18
1.4.4 Period of Study 18
1.5 LIMITATIONS OF THE STUDY 19
1.6 ORGANISATION OF THE THESIS 19

2 LITERATURE REVIEW 21
2.1 BUSINESS PROCESS REENGINEERING (BPR) 21
2.1.1 BPR History and Concepts 23
2.1.2 BPR and Related Concepts 25
2.1.3 Scope of BPR 27
 viii

2.1.4 Enablers of BPR 28

2.1.5 Information Technology and BPR 37
2.1.6 BPR and ERP 40
2.1.7 Present Approach to BPR 41
2.2 BPR EXPERIENCE IN VARIOUS COUNTRIES 42
2.2.1 BPR Practices in Developed Countries 43
2.2.2 BPR in Developing Countries 45
2.3 PUBLIC SECTOR UNDERTAKING 46
2.3.1 State Public Sector Undertakings in India 49
2.3.2 BPR in Public Sector 51
2.4 PERFORMANCE FACTORS AND PERFORMANCE
MEASUREMENT TECHNIQUES 52
2.4.1 Financial Performance Measurement 56
Ratio Analysis 56
2.4.2 Predicting Financial Distress of Companies 58
2.4.3 Non-Financial Performance Measurement 61
2.4.4 Human Resources Performance in the Public Sector 64
2.4.5 Integrated Performance Measurement System
(IPMS) 64
2.4.6 Performance measures by Balanced Scorecard 67
2.5 BPR AND ORGANIZATIONAL CHANGE 67
2.5.1 READINESS FOR CHANGE 70
2.6 SUCCESS OF BPR IMPLEMENTATION 73
2.6.1 How to Ensure Success in BPR Project 75
2.6.2 BPR Failures 75
2.7 METHODOLOGY OF BPR IMPLEMENTATION 78
2.8 IMPLEMENTATION OF BPR PROJECT 80
2.9 CONCLUSION 83

3 RESARCH METHODOLOGY 86
3.1 INTRODUCTION 86
 ix

3.2 RESEARCH DESIGN 86

3.2.1 STAGES OF THE STUDY 88
3.2.2 Stage 1 88
3.2.3 Stage 2 89
3.2.4 Stage 3 89
3.2.5 Stage 4 90
3.3 DATA COLLECTION 91
3.3.1 Tools and techniques of Data Collection 91
3.4 ANALYSIS OF DATA 96
3.4.1 Stage 1 97
3.4.2 Stage 2 97
Financial Performance Analysis 97
3.4.3 Stage 3 99
Analysis of Possible Performance Improvements 99
3.4.4 Stage 4 100
Analysis of the Readiness to Change of Employees 100

4 DATA ANALYSIS AND INTERPRETATION 102

4.1 PRELIMINARY STUDY ON THE CURRENT
PERFORMANCE OF PSUS IN KERALA 103
4.1.1 Keltron Counters Ltd. (KCL), Trivandrum 104
4.1.2 The Kerala Ceramics Limited (TKCL) 107
4.1.3 Transformers and Electricals Kerala Limited
(TELK) 108
4.1.4 Keltron Equipment Complex (KEC), Karakulam 109
4.1.5 Kerala Automobiles Ltd.(KAL) 111
4.1.6 Results of Preliminary Study 118
4.2 FINANCIAL PERFORMANCE ANALYSIS OF PSUS OF
KERALA 120
4.2.1 Net Profit/Loss 120
4.2.1.1 Chemical Industry 125
 x

4.2.1.2 Ceramics & Refractory Sector 126

4.2.1.3 Developmental and Infrastructural Agencies127
4.2.1.4 Electrical Industry 128
4.2.1.5 Electronic Industry 130
4.2.1.6 Engineering and Manufacturing 131
4.2.1.7 Textile Industry 132
4.2.1.8 Traditional Industries 133
4.2.1.9 Welfare Agencies 134
4.2.2 Net Profit Ratio (NPR) 135
4.2.3 Return on Capital Employed (ROCE) 142
4.2.4 Altman’s Z’ SCORE Model 153
4.2.5 Summary of Performance Indicators 158
4.2.6 Historicity and performance of PSUs 162
4.3 ANALYSIS ON POSSIBLE PERFORMANCE
IMPROVEMENTS (PPI) IN PSUS OF KERALA 164
4.3.1 Correlation between Factors of PPI 167
4.3.2 PPI in SPSUs and CPSUs of Kerala –a Comparison 170
4.3.3 Testing of Hypothesis 172
4.4 ANALYSIS OF READINESS FOR CHANGE IN PSUS OF
KERALA 178
4.4.1 Readiness to change in SPSUs 179
4.4.1.1 Comparison of Readiness to Change between
Executives and Workers of SPSUs 181
4.4.2 Readiness to change of SPSUs and CPSUs 183
4.4.3 Comparison of Readiness to Change of PSUs
Making Profits and Those Incurring loss 186
4.4.3.1 Readiness to Change of SPSUs Making Profits
and Incurring Loss 186
4.4.3.2 Readiness to Change of CPSUs Making Profits
and Incurring Loss 187
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4.4.4 Results of Analysis of Readiness to Change 189

5 FINDINGS, SUGGESTIONS AND CONCLUSION 192

5.1 FINDINGS 193
5.2 SUGGESTIONS 196
5.3 CONCLUSION 198

APPENDIX 1 201

APPENDIX 2 203

APPENDIX 3 204

APPENDIX 4 214

REFERENCES 217

LIST OF PUBLICATIONS 242

 xii

LIST OF TABLES

TABLE NO TITLE PAGE NO

1.1 Performance of SPSUs in India 7

1.2 Performance of SPSUs in Kerala from 1994-95 to
2012-13 9
1.3 Major Performance Domains 17
2.1 Categories of Performance Measures 56
2.2 Supply Chain Performance Measures in SCOR
model 63
2.3 Competitive priorities and types of measures of
the WCM 66
2.4 Types of organisational change 70
2.5 Four Stage Methodology for Implementation of
BPR 80
3.1 Sector wise Classification of SPSUs 87
3.2 Options of Questionnaire on Possible
Performance Improvement 94
3.3 BPR Success/Failure Factors 96
4.1 Monthly Production of KEC from 2004-05 to
2009-10 110
4.2 Production Statistics of KEC 111
4.3 Production Plan/Achieved During 2009 of KAL 113
4.4 Monthly Production of KAL from 2001-2 to
2011-12 115
4.5 Descriptive Statistics of Monthly Production of
KAL 117
4.6 Grade Wise List of Employees 118
 xiii

4.7 Profit/Loss of 41 State PSUs during 2001-02 to

2014-15 121
4.8 Total Net Profit of 41 PSUs 124
4.9 Net Profit Ratio of 41 State PSUs during 2001-02
to 2014-15 137
4.10 Return On Capital Employed (%) of 41 State
PSUs during 2001-02 to 2014-15 144
4.11 Summary Statistics of Return on Capital
Employed 151
4.12 Altman’s Score Model 153
4.13 Altman Score of 41 SPSUs during 2001-02 to
2014-15 154
4.14 Mean Values of Performance Indicators for 14
Years 159
4.15 Details of Funds Given to PSUs Under the
Industries Department 163
4.16 Estimate of PPI in SPSUs of Kerala 165
4.17 Levels of PPI in SPSUs of Kerala 166
4.18 Pearson Correlations between Factors of
Improvements 168
4.19 PPI in CPSUs of Kerala 170
4.20 Comparison of PPI in State and Central PSUs of
Kerala 171
4.21 t-test of PPI in SPSUs 172
4.22 t-test of PPI in CPSUs 173
4.23 Independent Sample t-test for comparison of PPI
in SPSUs and CPSUs 175
4.24 t-test on PPI of Profit Making and Loss Incurring
SPSUs 176
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4.25 t-test on PPI of Profit making and Loss incurring

CPSUs 177
4.26 Readiness to Change of Executives and Workers of
SPSUs 180
4.27 t-test of readiness to change of Executives and
Workers of SPSUs 182
4.28 Readiness to Change of SPSUs and CPSUs in Kerala 183
4.29 t-test on Factors of Readiness to Change in
SPSUs and CPSUs in Kerala 185
4.30 t- test on Readiness to Change of SPSUs Making
Profits and Those Incurring loss 187
4.31 Readiness/Resistance to change of CPSUs
Making Profits and Incurring Loss 188
4.32 t-test on Readiness to Change of CPSU Making Profit 189
and Incurring Loss
A 1.1 Sectors & Companies Selected for the Study 201
A 2.1 Financial Data of Kerala State Electronics
Development Corporation 203
A 3.1 Questionnaire on Possible Performance
Improvement of PSUs 204
A 3.2 Domains of Possible Performance PSUs of
Kerala 208
A 3.3 Questionnaire on Readiness to Change 212

A 4.1 A 4.1 Performance improvements in

various domains 214
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LIST OF FIGURES

FIGURENO TITLE PAGE NO.

2.1 The critical Success and Failure factors of BPR 73
4.1 Monthly Production of KEC from 2004-05 to
2009-10 110
4.2 Monthly Production of KAL from 2001-2 to 2011-
12 116
4.3 Total Profit/Loss of 41 companies from 2001-02
to 2014-15 124
4.4 Net Profit/Loss of Chemical Sector 125
4.5 Net Profit/Loss (Rs. in lakhs) of Ceramics &
Refractories 127
4.6 Net Profit of Development & Infrastructure
Agencies 128
4.7 Net Profit Electrical Sector 129
4.8 Net Profit Electronics Sector 130
4.9 Net Profit Engineering and Manufacturing 131
4.10 Net Profit Textile Sector 132
4.11 Net Profit Traditional Industries 133
4.12 Net Profit Welfare Agencies 134
 xvi

LIST OFABBREVIATIONS

BIFR - Bureau of Industrial and Financial Reconstruction

BPD - Business Process Design

BPI - Business Process Improvement

BPM - Business Process Management

BPR - Business Process Re-engineering

BRPSE - Board for Reconstruction of Public Sector Enterprises

BSC - Balance Score Card

CPM - Critical Path Method

CPSU - Central Public Sector Undertaking

CSF - Critical Success Factors

EPRE - Enterprise Process Reverse Engineering

ICT - Information and Communication Technology

JIT - Just-In-Time

KM - Knowledge Management

LO - Learning Organization

MGP - Modernizing Government Program

MNC - Multi-National Corporation

MRP - Materials Requirement Planning

MRP II - Materials Requirement Planning II

NPR - Net Profit Ratio

PDCA - Plan-Do-Check-Act

PERT - Program Evaluation and Review Technique

PI - Performance Improvement
 xvii

PM - Performance Measures

PMS - Performance Measurement System

PPI - Possible Performance Improvement

PSU - Public Sector Undertaking

RIAB - Restructuring & Internal Audit Board

ROCE - Return On Capital Employed

SCM - Supply Chain Management

SLPE - State Level Public Enterprises

SOE - State Owned Enterprises

SPSU - State Public Sector Undertaking

TQM - Total Quality Management

UNIDO - United Nations Industrial Development Organization

VRS - Voluntary Retirement Scheme

 CHAPTER 1

INTRODUCTION

Globalization and its progenies have succeeded in making

competition universal. World over, business organizations are facing increased
competition not withstanding its size or area of operation. Hyper
competitiveness has become a mark of modern business. Consequently,
business organizations are compelled to make an unending drive to finding
newer ways of remaining efficient in every organizational activity. Business
Process Reengineering (BPR) is a technique of redesigning every organizational
task to attain maximum efficiency in all business processes. It involves
fundamental and radical redesigning of all business processes to make dramatic
improvement in business by improving quality, increasing flexibility and speed;
all of which reduces cost and improve efficiency and effectiveness. BPR is a
business redesigning technique for process improvement using all the available
technologies mainly Information Technology.

The present research study is on the application of ‘BPR’ for making

drastic improvements in the performance of Indian Public Sector Undertakings
(PSUs). The population under study is the PSUs in Kerala. PSUs played a
pivotal role in the development of the country. For the last few years, however,
the performance of PSUs is not much to write home about, on account of which
some were closed down and many others are waiting to be shown the door out.
Drastic performance improvements are necessary for reviving the ailing PSUs.
BPR is a comparatively recent managerial technique for drastic performance
improvements. The basic premise of the study is that the technique can be
usefully applied for the revival of those poorly performing PSUs. Coming to the
nitty-gritty of BPR implementation, the level of present performance has to be
 2

evaluated to assess the need for drastic performance improvement, the factors
affecting performance in those organizations have to be identified, and the levels
of possible improvement in terms of such factors to be estimated. For successful
implementation of any major change, the readiness for change and committed
cooperation of the management and employees at all levels is equally important.
The present study covers these aspects.

Present state of management techniques and technologies for

performance improvements is the result of convergence of so many managerial
techniques developed and modified from time to time. It all started with the idea
of division of labour introduced in ‘Wealth of Nations’ by Adam Smith in 1776.
The major milestones in the endeavour for performance improvement in
industrial organisations as described by Narasimhan (2014) are:
1. Fourteen Principles of Management proposed by Henri Fayol (1900),
2. Principles of Scientific Management by, Frederick W. Taylor (1911),
3. Mass Production Techniques introduced by Henry Ford (1913),
4. The Human Relations School by Elton Mayo (1924),
5. Statistical Quality Control Introduced by Walter A. Shewhart (1924),
6. Plan- Do-Check- Act (PDCA) cycle proposed by Walter A. Shewhart
(1924),
7. Sampling technique proposed by W. Edwards Deming (1947)
8. Total Quality Control pronounced by A.V. Feigenbaum of America
(1951)
9. Quality Trilogy with Planning, Control and Improvement proposed by
Joseph Juran (1954)
10. Total Quality Management (TQM) system developed by Walter A.
Shewhart of Japan (1980)

BPR is an approach of radically redesigning the fundamental

business processes starting all over again so as to make dramatic improvement
 3

in business performance. It is a package comprising reengineering techniques

implemented along with the latest developments in Information Technology
(IT) or Enterprise Resource Planning (ERP). BPR techniques have been widely
adopted by most of the developed countries for performance improvement.
Organizations seeking continuous performance improvement had until recently
been relying mostly on TQM. Now they are implementing latest techniques like
Business Process Management (BPM) and Knowledge Management (KM).

In its crude form, BPR was in existence even in the days of Fredrick
Taylor, Henri Fayol etc. (Kondareddy 1998; Kuwaiti 2000). It was developed
into a new managerial technique by Hammer & Champy (1993).
Simultaneously, Davenport & Short (1990) developed the concept of Business
Process Redesign which is almost similar to Business Process Re-engineering.
In the initial stage, BPR was mainly adopted by US based firms for bringing
radical change in the business process as a replacement of the Japanese approach
of TQM (Hammer & Stanton 1995). To Hammer & Champy (1993):
“BPR is the fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in
critical, contemporary measures of performance, such as cost,
quality, service, and speed”.

BPM, according to Elzingaet al. (1995):

“is a systematic structured approach to analyse, improve,
control and manage processes with the aim of improving the
quality of products and services”.

In the modern context the redesign of processes relies on the use of

information technology (IT). Objectives of Business Process Redesign are Cost
Reduction, Time Reduction, Output Quality and Quality of work life/ learning/
empowerment, solution to the pressure of survival, close of competitive gaps,
 4

superior performance standards (Davenport & Short 1990; Al-Mashari et al.

2001). BPR initiatives usually aim to integrate separate functional tasks into
complete cross-functional processes. Reengineering utilizes components of
several management tools and concepts such as Systems Engineering, TQM,
Continuous Improvement, Bench marking, Activity Based Costing, Customer
Satisfaction Management, Cross functional team building and widespread use
of IT (Kondareddy 1998).

A few identical concepts almost used as synonyms of BPR are:

Business Process Redesign (Davenport & Short 1990), Business Process
Improvement (Hammer & Champy 2001; Siha & Saad 2008), and Business
Process Management (Elzinga et al. 1995). Hammer (2002) defines Process
Improvement as:
“a structured approach to performance improvement that
centers on the disciplined design and careful execution of a
company’s end-to-end business process.”

Manufacturing practices are changing day by day. Changes

normally are of two types: continuous improvement from the current – a gradual
change over a longer duration of time, and radical transformation over a shorter
span of time. The latter type of change requires a thorough check of the
possibilities and scope for adopting new techniques and technologies and the
readiness to change. Global competition, economic pressures and the potential
offered by the emerging technologies are pushing firms to fundamentally
change their way of operating and rethink their business processes (Vakola
2004). Now a number of organizations have converted themselves into world
class organizations through corporate restructuring and organizational change.
World over more than 70 per cent of large corporations have attempted BPR, as
early as in 1996 (Rahimi 1996). A large number of others are now in the verge
of implementation.
 5

In India, robust performance of public sector has been one of the

major factors for its sustained development and infusion and maintenance of
stability in the economy. However, the scenario has changed recently with
performance of PSUs falling in the recent past. Being an effective managerial
technique of fundamental and drastic performance improvements in
organizations, implementation of BPR in PSUs in India can be an effective
solution for the revival of poor performers. The issue at hand is that PSUs
require and deserve to change radically.

1.1 PUBLIC SECTOR UNDERTAKINGS

Based on ownership, business units are grouped between public and

private sectors. Neither command economies with only public sector, nor free
enterprise economies with only private sector do exist anymore. In effect, every
economy is an admixture of private and public sectors. A State Level Public
Enterprise (SLPE) or State Public Sector Undertaking (SPSU) is a legal entity
created by a government to undertake commercial activities. A Central Public
Sector Undertaking (CPSU) refers to a government company defined under
section 617 of the Companies act 1956. A CPSU can be defined as a business
enterprise where more than 50 per cent equity share, or controlling interest is
held by the Central Government. The subsidiaries of Government companies
are also categorized as CPSUs for all purposes of law. In SPSU, more than 50
per cent of equity holding or controlling interest is with the State Government.

In India, until the early 1990s, PSUs existed in almost all core sectors
and dominated the economy (Kanungo et al. 2001). Post 1991, with the ushering
in of economic liberalization, sectors that were exclusively preserved for Public
Sector Enterprises were opened to the private sector. The CPSUs which were so
far under the shelter of protection were thrown open to competition from both
the domestic private sector companies and large Multi-National Corporations
 6

(MNCs). That has sounded the death knell for the PSUs which were already sick
and weak. The situation has become visibly worse by the dawn of the 21st
century. At the same time the Central Government has also started the practice
of disinvesting through sale of shares to public and other organizations, in the
case of public sector units which were still healthy, and kicking.

By 2012 Kerala had 89 PSUs spread over 13 sectors (Bureau of

Public Enterprises 2012). Like their Central cousins, gone are the days when the
state PSUs exhibited sterling performance. On account of a host of reasons their
current performance is abysmally low even questioning their survival.
Government has tried privatization and related other measures to bring about
improvement of performance but has not succeeded so far and resulted in
antagonizing and spoiling the morale of the employees and making their unions
stronger and demanding (Ramaswamy & Renforth 1996).

The present study is to assess the need and scope of BPR in PSUs in
Kerala. The study restricts itself to performance analysis and scope for revival
through BPR of the PSUs under the Industries Department of the Government
of Kerala. There are 41 undertakings under that category. Exclusion is made of
other statutory corporations of the Government which are either public utilities
or under the control of the other departments such as KSEB, KSRTC and KSFE.
Two CPSUs of the similar category, namely: Hindustan Latex Limited (HLL)
and Hindustan Machine Tools (HMT) are also subjected to study. The
performance of the state level undertakings is subjected to comparison with that
of the above mentioned CPSUs to check the possibility of generalizing the
findings.

1.1.1 Public Sector Units and Poor Performance: A Brief Account

Examining the performance of CPSUs and SPSUs will lead us to the

picture of a general draining and waning of their performance. According to the
 7

National Survey on State Level Public Enterprises 2006-07 (Department of

Public Enterprises 2008), CPSUs yielded positive net profit of Rs.50 crores
during 1981-82. This has increased to Rs.13,582 in 1997-98. In 2005-2006, 157
profit making CPSUs earned a total net profit of Rs.76,240 crores and 58 loss
making units incurred a total loss of Rs.5,952 crores. Further, there were 837
SPSUs including working statutory corporations in India. Their investments
came to Rs.3, 33, 441 crores giving an employment of 18,71,805 units. Sector
wise figures show that 67 per cent of the investments are in ‘power and energy
sector’, nine per cent in industry, eight per cent in financial services, five per
cent in ‘transport services’, 4.5 per cent in mining, 3.5 per cent in trading &
marketing or other services and two per cent in agriculture. Top 10 states in
terms of number of working SPSUs and the profit/loss made by them during
2005-06 are given in Table 1.1.

Table 1.1 Performances of SPSUs in India

Sl. No. States No. of SPSUs Profit/Loss (Rs.in lakhs)

1 Kerala 89 45606
2 West Bengal 66 (388926)
3 Karnataka 65 93472
4 Maharashtra 55 (182711)
5 Tamil Nadu 55 (16535)
6 Uttar Pradesh 55 (70860)
7 Gujarat 45 124292
8 Assam 39 (73116)
9 Andhra Pradesh 35 26744
10 Orissa 32 112605
Total 536
Source: National Survey on State Level Public Enterprises 2006-07

Economic Review 2009 (State Planning Board 2010) reported a

sharp slowdown in growth in overall national manufacturing sector; it was only
2.3 per cent in 2008-2009 as compared to 9 percent in 2007-2008. Many PSUs
 8

were, by then, incurring huge loss and facing the threat of closure, leading to
loss of production and revenue, employment, etc. During the period from 1992
to 2006, 74 CPSUs were referred to the BIFR. Out of these, 28 units were
recommended for dissolution. It is significant to note that 57 CPSUs have
already been disposed off. During 1997-98 there were 236 operating CPSUs out
of which 100 were loss making units which incurred a loss of Rs. 6697 crores.
According to Public Enterprises Survey 2005-06 there were 58 loss-making
CPSUs which incurred a loss of Rs. 5952 crores. During 2012-13 out of 229
operating CPSUs there were 79 loss-making CPSUs showing an increase of 36
percent. They incurred a loss of Rs. 28260 crores, 375 per cent increase in loss
(Public Enterprises Survey 2012-13). By that time, there has been a decline in
the number of units having capacity utilization over 75 percent. From 61.60
percent in 1975-76 it went down to 51 percent in 1986-87. In 1986-87 the
number of units with less than 50 percent capacity utilization was 29 (17 per
cent). There are certain CPSEs, which had been incurring loss continuously for
the last several years and in a number of cases their accumulated loss have
surpassed their net worth, making the enterprises unviable. Out of 225 operating
CPSEs as on 31.3.2006, 58 had incurred loss aggregating to Rs.5951.62 crore
during 2005-06. During the span of 10 years, from 1996 to 2006, 3490 private
sector units and 68 PSUs (both state and central) have been registered as sick
units in Bureau of Industrial and Financial Reconstruction (BIFR) (Mukherjee
2007).

1.1.1.1 Performance of PSUs in Kerala

The performance of the state public sector manufacturing units, in

Kerala, according to Mathew (1997), had not been satisfactory. The Annual
Review of State Level Public Enterprises (Bureau of Public Enterprises 2003 to
2016), published by the Bureau of Public Enterprises, Government of Kerala,
reviewed performance of 114 SPSUs and reported that performances of most of
 9

them were not satisfactory for many years. Some units were closed down due to
inability to survive even after the revival efforts under the supervision of BIFR
and a few, revived. Some of them became non-operational due to heavy loss.
Keltron Counters Ltd., Keltron Power Devices Ltd., Keltron Rectifiers Ltd.,
Kerala Construction Corporation Ltd., Kerala State Detergents and Chemicals
Ltd., Kerala Soaps and Oils Ltd., and The Metropolitan Engineering Company
Ltd. are a few of the non-operational units. A comparative overview of the
performance of SPSUs during the period of 1994-95 to 2012-13 is presented in
Table 1.2.

Table 1.2 Performance of SPSUs in Kerala from 1994-95 to 2012-13

(Amount in Rs. Crores)

Indicators 1994-95 2001-02 2005-06 2010-11 2012-13

No. of Companies 94 98 95 83 85

Employment strength 71553 61087 60724 76179 76364

Capital Invested
1716 4082 7175 8145 10725
(Rs. Crores.)

No. of Profit Making

41 35 29 53 48
Units

Net Profit /Loss

56.96 -16.34 -23.40 675.41 348.65
Rs. Crores

Source: Bureau of Public Enterprises (1996 to 2014)

From the table, it can be seen that number of profit making units got
reduced from 41 out of 94 to 29 out of 95 from 1994-95 to 2005-06 and
increased to 53 out of 83 during 2005-06 and finally it is 48 out of 85 companies
during 2012-13. The value of net profit also shows similar trend having net
profit of rupees 56.96 crores during 1994-95, -23.40 during 2005-06, 675.41
 10

during 2010-11 and 348.65 during 2012-13. The performance variation requires
detailed study.

According to Chandrasekhar (2012) Kerala has enough enterprise

and innovative spirit, but what is required is a change in the mind set of
‘Keralities’, coupled with the cooperation of the private sector for the
development. Beena (1991) compared the performance of PSUs of Kerala with
private sector and found that a performance indicator - ratio of gross profit to
capital employed - is comparatively more in public sector, but the ratio of net
profit to net worth is much low. Also the Public Sector in Kerala is doing well
in terms of physical performance but is poor in financial performance. Another
problem is that the real wages of employees of PSUs have increased at much
faster rate than increase in labour productivity. Studies have shown that the per
capita real wage in PSUs increased at around 2.4 per cent per annum during
1970-71 to 1985-86, but the growth was a mere 1.6 per cent. At the present stage
of our economic development, PSUs have to play a strategic role in accelerating
economic growth. The PSUs could effectively absorb higher level of
technologies and transmit the same to the other sectors in the economy. The
PSUs have to provide the necessary dynamism for the future growth of our
economy. Enterprises Reforms Committee (Nov. 2001), Government of Kerala
has found that the PSUs of Kerala have become a huge burden on the state
exchequer and hence such undertakings should be immediately closed down or
privatized. On the basis of that report, the Government has issued orders for
disinvestment of 25 companies and hundreds of employees were given
voluntary retirement.

Contrary to the above stance, the Industrial and Commercial Policy

2011 of Government of Kerala affirmed its commitment for strengthening the
PSUs in the state and proclaimed that “Government will strengthen PSUs
through comprehensive enterprise specific modernization/ diversification
 11

/expansion packages and restructuring”. The Department of Industries and

Restructuring & Internal Audit Board (RIAB) took focused efforts on capacity
building of the PSUs so as to enhance their performance. Elamaram Kareem,
the then Minister for Industries & Commerce, Government of Kerala claimed
that their ministry could drastically improve the performance of PSUs of Kerala
by taking some steps for performance improvements (Kareem 2011).

1.1.2 Industrial Sickness and Restructuring of PSUs

The fact that PSUs perform below expectations has prompted a lot
of studies throughout the world regarding their vitality and sustainability. Simon
(1998) compared the performance of successful and non-successful federal
bureaus in United States. Successful bureaus were more effective in formulating
concepts in vision, purpose, mission, values, goals, and strategies and linking
concepts directly to performance activities. Seetharaman (2000) measured the
Financial Performance of Selected Heavy and Medium Public Sector
Engineering Enterprises in India and found that the profitability performance in
Public Sector Enterprises is positively associated with the better management
of funds in fixed and working capital resources. It is found that compound
growth rate in most of the Heavy and Medium public sector engineering
enterprises is negative which indicates that the efficiency is far below the levels
expected. The overall performance of PSUs is far from satisfactory. It is
estimated that the potential investible resource, to the extent of Rs.100 crores a
year, are lost due to the dismal performance of PSUs (Anilkumar 1990).
Inadequate financial management which points to the need for a proper
professionalization of public sector management has been pointed out as one of
the reasons for loss of PSUs. Prasad et al. (2007) point out the following as
reasons for poor performance of PSUs:
1. Lack of technological up gradation
2. Inadequate attention to research and development
 12

3. Delays in completion and consequently increase in cost of public

projects
4. Over staffing
5. Labour indiscipline
6. Underutilization of installation capacity
7. Excessive political interference
8. Bureaucratic instead of professional management
9. Under emphasis on capital-intensive technology

All these points present the need for professional restructuring the
Public Sector Enterprises, using latest technology.

The Sick Industrial Companies (Special Provisions) Act, 1985, as

amended in 1993 defines a sick industrial company as ‘an industrial company
(registered for not less than five years) which has at the end of any financial
year accumulated loss equal to or exceeding its entire net worth’. The major
aspects leading to sickness are:
1. Increase in the cost of production,
2. Decrease in the quantity of production,
3. Quality of product not meeting the standards/customer expectation,
4. Overproduction leading to accumulation of stock of unsold goods,
etc.

Revival of sick PSUs is an essential requirement of the time. As per

Economic Advisory Council (1987), some of the measures to rehabilitate poor
performing PSUs are:
1. Capital base of many PSUs need to be restructured,
2. Inappropriate market tie-up should modify their marketing strategy
and
 13

3. PSUs which face hardships due to wrong choice of technology or

product-mix should be allowed to modify their technology or product
mix.

Another determinant of performance is capability of management

and the ability to tackle problems. These and other options for reviving PSUs
bring us to measures of organizational restructuring. Some of the strategies for
restructuring/ revival of CPSUs including sick units on long-term basis include:
1. Revival of CPSUs through the process of BIFR;
2. Financial restructuring wherever appropriate;
3. Formation of joint ventures by induction of partners capable of providing
technical, financial and marketing inputs;
4. Infusion of fresh funds;
5. Organizational and business restructuring;
6. Human resources development including manpower rationalization
through approved Voluntary Retirement Scheme (VRS);
7. Improved marketing strategies;
8. Modernization and technological innovations;
9. Cost control measures, etc.

1.2 BUSINESS PROCESS REENGINEERING

BPR is an effective way to bring about organizational change. The

ability of organizations to adapt and change has been a vital requirement.
Evolutionary changes had taken place in every organization for improving the
efficiency and effectiveness from time immemorial. At times the changes were
drastic and revolutionary. BPR stands for such drastic and revolutionary
change. Hammer & Champy (1993) are the proponents of BPR. Hammer
introduced the concept of BPR by his scholarly work, in the Harvard Business
Review (Hammer 1990). The book ‘Re-engineering the Corporation: A
 14

Manifesto for Business Revolution’ co-authored with James Champy brought

the concept to the limelight. BPR proposed by Hammer & Champy (1993) and
Process Redesign proposed by Davenport & Short (1990) have similar
objectives. To Davenport (1993), in the eighties cutting edge firms introduced
continuous improvement known as TQM for improving their operational
performance; in the Nineties the same firms were experimenting with more
radical process change approaches which came to be known as Process
Innovation, Redesign, or Reengineering.

Hammer & Champy (1993) defines BPR as the fundamental

rethinking and radical redesign of business processes to achieve dramatic
improvements in critical, contemporary measures of performance. The main
objectives of redesign are cost reduction, time reduction, improvement of output
quality, and quality of work life/learning/empowerment. So BPR is a
technology for drastic improvement in the performance of organization using
various performance improvement techniques. These techniques, which are
known also as enablers of BPR are as follows:
1. TQM and related techniques: (Continuous Improvement, Six Sigma,
Employee empowerment, Bench marking, Just-in-time (JIT), Taguchi
concepts, TQM tools, etc.)
2. Agile Manufacturing;
3. Lean Manufacturing;
4. Collaborative Manufacturing;
5. Intelligent Manufacturing;
6. Production Planning;
7. Information Technology and Related Techniques like ERP, KM, etc.

Some of the identical BPR concepts are Business Process Redesign,

Business Process Improvement (BPI), and Business Process Management
(BPM), and Enterprise Process Reverse Engineering (EPRE).
 15

BPR implementation brings a lot of benefits. Ranganathan &

Dhaliwal (2001) reported the case of Bell Atlantic Telephone, which was able
to cut cycle time from 15 to 3 days, labour cost from 88million to six million.
Housing Development Board in Singapore, achieved dramatic improvements in
Customer Service (87 per cent), Lease & Tenancy Services (58.4 per cent),
Financial Services (66.1 per cent), Maintenance/Renovation Services (66.7 per
cent), General Administration (34 per cent). The average improvements in this
case were 62.4 per cent (Thong et al. 2000). Altinkemer et al. (2011) reported
that there are performance improvements in manufacturing and operations,
accounting and finance, labour productivity, inventory turnover and IT by the
implementation of BPR.

Though BPR is the modern global mantra for business

reconstruction, its use is not so global. Out of the total successful
implementation, about 59 per cent are in USA, 22 per cent in UK, 8 per cent in
Europe, 5.5 per cent in Japan, Singapore and Korea and only 5.5 per cent to the
rest of the world. It means that in spite of the immense benefits embedded in it,
BPR is only finds a marginal application in the developing countries.

Jarrar & Aspinwall (1999) found that about 69 per cent of the cases
had radical (more than 60 per cent improvement over the old way of working),
28 per cent of the cases major (30 to 60 per cent) and three per cent of the cases
incremental benefit (less than 30 per cent improvement) from BPR
implementation.

1.2.1 BPR IN INDIA

In India there are classic examples of BPR implementation offering

vital lessons to be learned. It was implemented by the Income Tax Department,
Ministry of Finance, Government of India, in 2007. Reports show that the
Department benefited substantially by achieving faster growth, in collection of
 16

direct taxes reaching a record of Rs.3,14,468 crore in 2007-08 against Rs.48,280

crore in 1997-98. Indian Refinery was able to reduce the inventory carrying
cost by over 30 percent and improve profitability by 15 percent within two years
(Dey2001). Mahindra & Mahindra Ltd. implemented BPR in 1994 and
produced dramatic benefits in every area of the company (Radhakrishnan &
Balasubramanian 2008). Some of the benefits derived were that new product
development time got reduced by 50 percent, schedule adherence for vehicle
dispatch improved from 70 percent to 95 percent, order-to-delivery cycle times
were trimmed by more than 50 percent in the Spare Parts Department, sales
forecasting improved from 30 percent to 70 percent and a customer complaint
redressals were reduced by 50 percent, materials costs reduced by six percent
and vendor development time by 30 percent.

1.3 SCOPE OF THE STUDY

The study is restricted to the PSUs in Kerala under the control of

Department of Industries, Govt. of Kerala. The prevailing performance level of
the PSUs under study and the scope for implementation of BPR in the PSUs was
subjected to preliminary study. Having understood the scope for
implementation of BPR, for setting a wider and accurate premise for detailed
study, the researcher has done a thorough financial performance analysis for the
period from 2001-2002 to 2014-2015 of the 41 PSUs.

Based on the preliminary study and analysis of the financial

statements and other secondary data the researcher has identified the major
domains for performance improvements. The researcher has taken the
performance domains identified on the basis of the above stages as the focal
points of the descriptive research. The major domains identified are given in
Table 1.3.
 17

Table 1.3 Major Performance Domains

1. Cost 5. Future Growth 9. Flexibility

2. Quality 6. Human Resource 10. Trade Union
3. Time/Speed 7. Political 11. Information Technology
4. Delivery 8. Service 12. Obsolescence

The purpose of the descriptive study was to measure the level of

performance improvement required in each domain and to assess how far the
internal environment of the organization is supportive for the required changes.
For measuring the level of performance improvement in each domain and the
readiness for change, the researcher has conducted primary survey on 6 PSUs
selected through judgement sampling based on feasibility. The study was done
using two structured tools; one, meant for executives of sample companies for
assessing the level of Possible Performance Improvement (PPI) in their
organization and the second, meant for employees of all levels for studying the
internal environmental support for the change.

1.4 METHODOLOGY

A complete description of the methodology is presented in Chapter

3. An outline of the methodology is described here.

1.4.1 Problem Statement

BPR is a managerial tool that is used for drastic performance

improvements in organizations for the last two and half decades, particularly in
the industrialized western world. At present, the western world is ahead with
use of newer techniques like BPM and KM. Use of BPR or related techniques
is limited in India. A poor and highly fluctuating trend in performance is evident
on assessing data regarding Public Sector Enterprises (Bureau of Public
Enterprises 2003 to 2016). Until now, Kerala has no major recorded BPR
 18

initiatives. This motivated a detailed analysis on the scope of BPR as a solution

for the revival of these poor performing organizations. Another problem
addressed is how far the internal environment is supportive in terms of readiness
for change of employees in PSUs.

1.4.2 Objectives of the Study

The objectives of the study are:

1. Evaluating the current performance of PSUs in Kerala and identifying
the major variables affecting their performance.
2. Analyzing the financial performance of PSUs in Kerala for the last
few years, and to identify the scope and need for the implementation
of BPR.
3. Measuring the extent of possible performance improvements in
SPSUs in respect of each variable, with implementation of BPR.
4. Comparing the possible performance improvements in SPSUs and
CPSUs in Kerala.
5. Measuring the degree of acceptability and readiness of change among
employees for the implementation of BPR.

1.4.3 Hypotheses of the study

In relation with the above objectives the following research

hypotheses have been set up for verification by the present study:
Hypothesis 1: There is scope for over 50 per cent Possible Performance
Improvement (PPI) for each domain demanding improvement in the PSUs of
Kerala.
Hypothesis 2: The PPIs of SPSUs is higher than that of CPSUs in Kerala.
Hypothesis 3: The PPIs of loss incurring PSUs is more than profit making PSUs.
Hypothesis 4: Executives have higher readiness to change than workers
 19

Hypothesis 5: Readiness to Change of employees of SPSUs is greater than those

of CPSUs.
Hypothesis 6: Readiness to change of employees in PSUs incurring loss is
greater than those of PSUs making profit

1.4.4 Period of Study

For the effective conduct of the study, data pertaining to a fairly long
period is required. As such financial performance of the organizations for 14
years (from 2001-02 to 2014-15) were used.

1.5 LIMITATIONS OF THE STUDY

The study is limited to the PSUs under the Department of Industries,

Government of Kerala and two Central PSUs in Kerala. Detailed study was
limited to a few companies in selected sectors. However, it provides adequate
representation of the factors influencing the performance deficiencies of PSUs
in general. The researcher is of the opinion that the findings arrived at can be
generalized with confidence to arrive at conclusions as to the whole population.

There are hundreds of factors influencing performance and the

environmental setting in each organization is unique due to the combination of
the influences in varying proportions. Only major factors affecting performance
improvement were studied.

It is understood that the BPR package should be tailor made to the

situations prevailing and the requirements of each organisation. The study has
adopted well established and scientific methods, so that limitations could be
overcome to the maximum possible extent.
 20

1.6 ORGANISATION OF THE THESIS

The present study is organized into five chapters.

First Chapter deals with the introduction to: PSUs and its importance;
BPR and its applications; scope, objectives, hypothesis and the design of the
study.

The second Chapter presents the related review of literatures.

Literatures related to BPR, BPR experiences in various countries and its
benefits; PSUs, application of BPR in PSUs; performance factors and
performance measurement techniques; BPR and Organisational change,
Readiness to change, methodologies of BPR implementation; etc. were
extensively reviewed.

The third Chapter is on the research framework. Research design,

Phases of the research work, Tools and techniques of data collection, methods
of data analysis, etc. were discussed.

The fourth Chapter presents the details of data analysis and

interpretation of the results; on primary study, financial performance analysis,
assessment of possible performance improvements, assessment of readiness to
change of employees.

The fifth Chapter summarizes the findings of the study, made

suggestions out of the study and presents conclusion. It also suggests the areas
for further research and the describe contribution of the study to the society and
to the BPR theory.
 CHAPTER 2

LITERATURE REVIEW

This chapter aims at an extensive review of literature related to BPR

in the context of public sector undertakings. The literature study includes
scholarly research, publications on book format, reports of seminars and
workshops, government publications, studies published in web sites, journal
articles, newspaper reports etc. Topic wise, the review includes: BPR definition,
evolution, benefits, and difference with other managerial techniques, related
technologies, performance measurements techniques, performance of certain
Central and State PSUs, various performance evaluation techniques and
methods for performance improvement in manufacturing organization.
Literature related to management techniques, factors that facilitate
implementation of change, studies related to readiness to change, and latest
management techniques etc. find a place in this review.

2.1 BUSINESS PROCESS REENGINEERING (BPR)

BPR is a managerial technique widely used for drastic performance

improvement in organizations. It has been developed through many years as the
result of the convergence of many managerial techniques developed and
modified from time to time. Some of the earlier works were; Principle of
Division of Labour by Adam Smith, Principles of Scientific Management by
Frederick W. Taylor, Mass production techniques introduced by Henry Ford,
etc. Most of the techniques developed in later stages are modifications of earlier
ones using techniques from other areas.

From its crude form emerging from the days of Fredrick Taylor,
Henri Fayol, etc. (Kondareddy 1998; Kuwaiti 2000) BPR was developed into a
 22

new managerial technique during 1990 by Hammer (1990). Simultaneously,

Davenport & Short (1990) developed the concept of Business Process Redesign
- a concept similar to BPR. In the initial stage, BPR was mainly adopted by US
based firms for bringing radical change in the business process as a substitute
for the TQM of Japanese origin (Hammer & Stanton 1995).

According to Hammer & Champy (1993) BPR is the fundamental

rethinking and radical redesign of business processes to achieve dramatic
improvements in critical, contemporary measures of performance, such as cost,
quality, service, and speed. The main objectives of redesign are: cost reduction,
time reduction, improvement of output quality, and quality of work-
life/learning/empowerment (Davenport & Short 1990), pressure of survival,
close of competitive gaps, superior performance standards (Al-Mashari et al.
2001). BPR initiatives usually aim to integrate separate functional tasks into
complete cross-functional processes. Davenport & Short (1990) describe a five
step process for redesigning the process as: develop business vision and process
objectives, identify processes to be redesigned, understand and measure existing
processes, identify IT levers, and design and build a prototype of process.

While divergent views are not altogether absent, there is convergence

of opinion among researchers that BPR is a new approach for process
improvement. BPR is treated as a new approach for the process management
that brings radical change (improvement) in organizational performance (Habib
& Shah 2013). The term BPR is used as a technology and methodology of
drastic improvement in the performance of organization using various
performance improvement techniques so far developed including TQM, lean,
six-sigma, IT and any other technique available so far. Kim & Kim (1997)
developed a new methodology called Enterprise Process Reverse Engineering
(EPRE) for supporting the redesign phase of BPR. Despite differences in
terminologies their essence is process improvement. A few identical concepts
 23

almost used as synonyms of BPR are: Business Process Redesign (Davenport &
Short 1990), Business Process Improvement (Hammer & Champy 2001; Siha
& Saad 2008), and Business Process Management (BPM) (Elzinga et al. 1995).
Hammer (2002) defines Process Improvement as a structured approach to
performance improvement that centres on the disciplined design and careful
execution of a company’s end-to-end business process.

Many a research reported benefits of BPR implementation. Bell

Atlantic Telephone was able to cut cycle time from 15 to 3 days, labour cost
from eighty-eight million to six million (Ranganathan & Dhaliwal 2001). Paper
et al. (2001) demonstrated a BPR case of reducing defect rate by 70 per cent,
customer rejects by 57 per cent, cycle time on parts by 72 per cent, inventory
investment by 46 per cent, and customer lead time by 70 per cent. Overall
improvement in this case came to 63 per cent. Housing Development Board in
Singapore, achieved dramatic improvements in: Customer Service (87 per cent),
Lease & Tenancy Services (58.4 per cent), Financial Services (66.1 per cent),
Maintenance/Renovation Services (66.7 per cent), General Administration (34
per cent). The average improvements in this case were 62.4 per cent (Thong et
al. 2000). Altinkemer et al. (2011) reported that there are performance
improvements in manufacturing and operations, accounting and finance, labour
productivity, inventory turnover and IT by the implementation of BPR even
though there is a slight reduction during the initial stages of project
implementation.

Now the early adapters of BPR are adopting Business Process

Management (BPM) for further Process Improvement (PI). BPM, according to
Elzinga et al. (1995):
“is a systematic structured approach to analyse, improve,
control and manage processes with the aim of improving the
quality of products and services”.
 24

In the modern context the redesign of processes relies on the use of

information technology (IT).

2.1.1 BPR History and Concepts

BPR as a tool has been used extensively since 1990, for drastic
restructuring of organizations. Hammer & Champy (1993) are the proponents
of BPR. In his scholarly work, "Re-engineering work: Don't automate,
obliterate" in the Harvard Business Review, Hammer (1990) introduced the
concept of BPR. His subsequent book co-authored with James Champy (1993)
‘Re-engineering the Corporation: A Manifesto for Business Revolution’
brought the concept to the forefront. During the same period Davenport & Short
(1990) published an article ‘The New Industrial Engineering: Information
Technology and Business Process Redesign’ explaining the concept of Business
Process Redesign using Information Technology. BPR proposed by Hammer &
Champy (1993) and Process Redesign proposed by Davenport & Short (1990)
have similar objectives. To Davenport (1993), in the eighties cutting edge firms
introduced continuous improvement known as TQM for improving their
operational performance; in the nineties the same firms were experimenting
with more radical process change approaches which came to be known as
Process Innovation, Redesign, or Reengineering. There are similarities and
differences between these approaches. Hammer & Stanton (1995) clarifies that
BPR is a tool used for bringing radical change in the business process and was
adopted initially by US based firms as a replacement of the Japanese approach
of TQM.

Harrington (1995) is of the opinion that in a fast-changing

environment, organizations need to take full advantage of both continuous
improvement and breakthrough improvement. They could start with continuous
improvement and expand their improvement effort by breakthrough
 25

improvements in process benchmarking, process redesign and new process

design. Vakola (1999) explains that BPR is based on tools and techniques from
a variety of disciplines such as industrial engineering, quality management or
systems analysis. However, BPR received its full impact through the
introduction of Business Process Management and Business Process Trends
(Ramachandran 2005; Paim et al. 2008). Association of Business Process
Management Professionals (ABPMP 2009) define BPM as a method for
identifying, designing, executing, documenting, measuring, monitoring,
controlling and improving automated or non-automated business processes to
achieve results more aligned to organization strategies. BPM demands a
permanent and continuous organizational commitment and is implemented
through a continuous life cycle model (InêsDallavalle de Pádua et al. 2014).

Alternative views regarding origin of BPR are also available. For

instance, Bhat (2007) claimed that BPR originated a few decades back as a result
of the harmonious blending of a number of methodologies. In this example,
production organizations undertook reengineering through implementation of
methods like concurrent engineering, lean production, and cellular
manufacturing, group-technology. Certain others claim its origin to early 1980s
when Just-In-Time (JIT) and TQM were hot topics. Kondareddy (1998),
Kuwaiti (2000) etc., are of the view that BPR in its crude form was in existence
even the days of Fredrick Taylor, Henri Fayol, etc.

2.1.2 BPR and Related Concepts

As pointed out earlier, there are a few terminologies like Business

Process Redesign, Business Process Improvement (BPI), Business Re-
engineering, Organizational Re-engineering, Process Re-engineering or just Re-
engineering, Enterprise Process Reverse Engineering (EPRE), and BPM. The
 26

objectives and methods employed in them are more or less the same. We take a
look at a few of them.

Jarvenpaa & Stoddard (1998) maintain that Business Process

Redesign is the first of the two phases of BPR with Redesign being the blueprint
of change which is radical in nature, and Reengineering implementation which
is not necessarily radical. If the organization is in the midst of survival crisis,
change may be revolutionary, for others it can be evolutionary allowing the
organization to move forward in a measured fashion.

Four PI methods suggested by Samia & Germaine (2008) are: Six

sigma, Benchmarking, BPR and Process mapping. Benchmarking is the process
of continuously measuring and comparing one’s business processes against
comparable processes in leading organizations to obtain information that will
help the organization identify and implement improvements (Watson 1993).
The critical success and failure factors which are the determinants of BPI are
summarized as: Top management support, Strategic alignment, Process
improvement project, Human resources, Business environment, Performance
measures, and Sustainability. Process mapping shows relationships between
activities, people, data and objective and offers a “visual aid” to PI and provides
a mean for analysing the process (Cureteanu 2009).

Kim & Kim (1997) developed a methodology called Enterprise

Process Reverse Engineering (EPRE) for supporting the redesign phase of BPR.
The EPRE process modelling and redesign method consists of the three stages;
Form analysis, Process Model Generation and Process Redesign. Van der Aalst
& Van Hee (1996) defined BPM as:
“supporting business processes using methods, techniques and
software to design, enact, control and analyze operational
processes involving humans, organizations, applications,
documents and other sources of information.”
 27

BPM is also defined as all efforts in an organization to analyse and

continually improve fundamental activities such as manufacturing, marketing,
communications and other major elements of company’s operations (Zairi
1997). To Ramachandran (2005) BPM is the closed loop, iterative management
of business processes over their entire lifecycle which includes designing,
optimizing, documenting, communicating, deploying, evaluating, updating, and
retiring processes.

Successful organizations take a three-pronged approach to BPR;

Integration, Optimization and Information (Davenport et al. 2004), to achieving
value from their Enterprise Systems (ES). Integration refers to unifying and
harmonizing their Enterprise Systems (ES), data, and processes with an
organization's unique environment; and using the systems to better connect
organizational units and processes, as well as customers and suppliers.

Al-Mashari et al. (2001) hold that BPR is a continuum of change

initiatives with varying degrees of radicalness as; process improvement,
moderate redesign, process redesign, moderate reengineering, and very radical
reengineering. It includes Benchmarking, TQM and Change Management. The
approach mostly adopted was combining short-term improvement with long-
term innovation.

2.1.3 Scope of BPR

The scope of implementation of BPR is unlimited. Depending on the

desired degree of change, BPR can be implemented with varying scope and
levels ranging from narrow processes to changes that go beyond the
organization’s boundaries to include business partners, customers and suppliers
(Al-Mashari & Zairi 2000).
 28

Davidson (1993) reported the case of Rank Xerox which

reengineered its contract re-financing process from a cycle time of 112 days to
just over a day because employees were empowered via the elimination of
formal procedures, such as multiple approvals and reconciliation checks.
Management hierarchies are also flattened. Sia & Neo (2008) reported that Taco
Bell eliminated the “district manager” layer, which traditionally oversaw the
management of five or six restaurants. Mutual Benefit Life, in a more drastic
move, reduced the original 57 job levels to just four after reengineering.
Vijayalakshmi (2004) found that manufacturing industry, the world over is
applying organizational structure changes of radical nature. The key corporate
strategies are; global branding, reduced operating expenses, focused R&D on
shorter-term specific business opportunities, more strategic alliances with
customers, suppliers and competitors and value chain management strategies.

To Suchman (1995) and Boudreau & Robey (1996) the benefits of

BPR include greater empowerment and more work monitoring employing
techniques such as workflow modelling, process mapping, and process
management standards. The compelling forces to go the reengineering way, to
Tennant & Wu (2005) are external competitive pressure, internal cost reduction,
and productive improvement. It is found that adopting robust strategic planning
and process management techniques to achieve maximum benefits of BPR for
the long rather than short term can overcome difficulties associated with BPR.
Organizational Structure, empowerment, training, IT systems, etc. should be
considered together for the success of BPR. IT enablers, effective
communication, coordination and understanding are also required.

Sia & Neo (2008) rightly remarked that in a global economy that
competes on knowledge and time, organizations have been embarking on BPR
as a way of removing inefficiencies for sharpening their strategic edge. BPR
enables co-existence of empowerment and work monitoring which is appealing
 29

in today’s dynamic and competitive environment, because it enables control at

minimal costs without compromising intensity. Workplace knowledge
generated through BPR enhances disciplinary power.

Seven BPR crucial variables/areas identified for effective BPR by

Herzog et al. (2007) are: management commitment, education & training, team
work, BPR project characteristics, employee cooperation, information
technology support, and levers & results. These seven factors totally consist of
56 sub items.

2.1.4 Enablers of BPR

Successful implementation of BPR requires various tools and

techniques known as "enablers". Enablers provide with means, opportunities,
power or authority (Chan & Choi 1997); as well as feasibility or effectiveness
of change (Olalla 1999). To Kondareddy (1998), reengineering utilizes
components of several management tools and concepts such as Systems
Engineering, TQM, Continuous Improvement, Benchmarking, Activity Based
Costing, Customer Satisfaction Management, Cross functional team building
and widespread use of IT. Goksoy et al. (2012) grouped enablers as:
1. Use of IT
2. Structural enablers like organizing of functional tasks into group-based
units or teams
3. Cultural enablers like empowerment and participation
4. Human resources enablers that include human resources utilization and
human resource policies
5. Quality management methodologies such as TQM, Six Sigma, etc., and
6. Process improvement techniques like Japanese Kaizen, Lean, Total
Productive Maintenance etc.
 30

Al-Mashari et al. (2001) identified 11 major groups of techniques

and tools in BPR efforts. Mostly used tools in the order of usage are: Project
management tools such as PERT, CPM and Gantt Charts; Process capture and
modelling; Problem solving and diagnosis; Organizational analysis & design;
Customer requirement analysis; Business Planning Critical; Process
measurement; Creative thinking; Change management; IS systems analysis and
design; and Process prototyping and simulation. According to O’Neill & Sohal
(1999), the tools and techniques of BPR include Process visualization,
development of a vision of the process and Process mapping/operational method
study.

Radhakrishnan & Balasubramanian (2008) identified the following

management techniques for performance improvements, viz: Agile
Manufacturing, Lean Manufacturing, Just-In-Time (JIT), Collaborative
Manufacturing, Intelligent Manufacturing, and Production Planning. According
to Ryan & Hurley (2004) there are many modern tools and techniques that are
used in the management for performance improvement, apart from the
management techniques of TQM, BPR, Learning Organization (LO), KM
employed in the later part of 20th century. The following major enablers of BPR
have been identified from the review of Literature.

1. TQM and related techniques:

a. Continuous Improvement,
b. Six Sigma,
c. Employee empowerment,
d. Benchmarking,
e. Just-in-time (JIT),
f. Taguchi concepts,
g. TQM tools,
2. Agile Manufacturing;
 31

3. Lean Manufacturing;
4. Collaborative Manufacturing;
5. Intelligent Manufacturing;
6. Production Planning;
7. Information Technology and Related Techniques like:
a. ERP, and
b. Knowledge Management.

Some of the important BPR related techniques and enablers are

discussed in the following sections.

TQM has been widely used as a management science since 1980.

TQM refers to the management of an entire organization so that it excels in all
aspects of products and services that are important to the customer. Munro-
Faure & Munro-Faure (1992) identified the following major differences
between TQM and BPR: TQM encourages incremental change whereas BPR
encourages radical change, and TQM concentrates on existing processes,
whereas BPR abolishes the existing process and starts all over again with new
ones.

Stewart (1993), Hansen (1994) and Collins & Hill (1998) studied the
application of TQM and BPR for organizational change. As it is a less resisted
change, many companies introduced TQM as a front runner to BPR. Stewart
(1993) holds that ‘you cannot do reengineering without an environment of
continuous improvement or TQM’. Hansen (1994) considers TQM as the
foundation of process reengineering as it embraces open communications, and
breaks down the barriers which exist between management and non-
management personnel. To Edwards & Peppard (1994) TQM programs are
more likely to succeed in the event of implementing BPR. The capability of
TQM to bring in enduring organizational transformation, that is the focus of
 32

BPR, has been highlighted by Dervitsiotis (1998). Collins & Hill (1998) found
that organizations with poor performance adopt long term change strategies that
comprise both incremental improvement (through TQM) and radical innovation
(through BPR). Both approaches play a critical role in shaping the
organization’s capacity to support its own transformation strategy.
Transformation would require a culture which questions conventional mind-set
and foster the ability to be self-critical. Yeh (2000) found that TQM concepts
implemented in the public sector was successful in providing many positive
improvements in areas such as Self-efficacy, Project-involvement, Job-
enrichment, Standardization, etc. Heizer et al. (2008) describe seven tools that
are used in TQM. They are Check sheets, Scatter Diagrams, Cause-and-Effect
diagrams, Pareto Charts, Flow Charts, Histograms, and Statistical Process
Control.

The technique of Continuous Improvement, based on the Japanese

concept of Kaizen, involves continually seeking ways to improve operations. It
involves identifying benchmarks of excellent practices elsewhere and instilling
a sense of employee ownership of the process. Atkinson & Nicholls (2013)
stressed the importance of Lean Cultural Change and Continuous Improvement
for making commercial organizations profitable. In their opinion, acquisition of
advanced facilitator and internal consulting skills along with use of advanced
Lean methodologies using the PDCA cycle is the basis of continuous
improvement. According to Harrington (1995), organization with fast-changing
environment should take full advantage of continuous improvement and
breakthrough improvement. During the initial stage of improvement process it
is better to start with continuous improvement for establishing a working base
and then expands to breakthrough improvement. The three approaches used for
applying breakthrough improvement efforts to their critical business processes
are; Process benchmarking, Process redesign, and new process design.
 33

Six-Sigma is a method for improvement of the quality of a process.

This approach reduces the occurrence of defects to less than four per million
operation or events. It strives in improving product quality; raise efficiency;
reduce costs or expenses, process times; and the resultant maximization of
profits and customer satisfaction (Chung et al. 2008). Large global corporations
with multiple sites are found to accomplish BPR efficiently using Six Sigma
(Goel & Chen 2008).

Involving employees in every step of the production process is

employee empowerment. According to Psoinos & Smithson (2002) the success
of Employee empowerment depends on changes in procedures, hierarchies and
reward structures. Harrim & Alkshali (2010) identified four subscales
/dimensions to assess employee empowerment. They are Impact, Self-
determination (choice), Competence and Meaning. Team effectiveness
consisted of four subscales/dimensions; performance, innovation,
communication and use of resources.

Benchmarking involves selecting a demonstrated standard for

products, services, costs, and practices corresponding to very best performance
for processes or activities. The performance benchmarking model can be based
on any defined foundation, including quality, flexibility, agility, profitability or
market share and can be used to determine the performance gaps between itself
and a pre-defined level of performance or its strategic competitors (Yung &
Chan 2003). Performance benchmarking can aid in determining the goal and
scope of changes, and can assist in developing a foundation for the value
delivery system for BPR.

The purpose of JIT production is to avoid the wastage associated with

overproduction, waiting and excess inventory. Mazany (1995) refer to JIT
broadly as the philosophy that encourages an organization to remove all types
 34

of waste principally that associated with time and materials. Hahn et al. (1983)
presents the critical elements of JIT purchasing as: reduced order quantities,
frequent delivery schedules, reduced lead times, and high quality levels for
purchased materials.

Taguchi provided with three concepts for improving product and

process quality which are quality robustness, quality loss function and target
oriented quality called Taguchi concepts (Heizer et al.2008). Taguchi concept
of Product and process optimization can be applied in ‘system design’ and
‘parameter design’ phases of a system for reducing cost (Garzon 2000). The
suggested improvement cycle consists of Product and or process improvement,
Cost Reduction, Extra resources generated, Resources assigned for process and
product improvement.

Agile Manufacturing can be defined as an enterprise level

manufacturing strategy of introducing new products into rapidly changing
markets and organization ability to thrive in a competitive environment
characterized by continuous and sometimes unforeseen change. Agile
Manufacturing enables businesses to be flexible and lean. According to
(MoJohn 2009) ‘Production Efficiency Program (PEP)’ developed by
Furnishing Industry Association of Australia has revealed the need to apply lean
and agile manufacturing concept to IT implementations.

The main concept of lean thinking is the elimination of seven types

of wastes (Womack & Jones1996; Chang 2001) namely Overproduction,
Waiting, Unnecessary transportation, Inappropriate processing, Unnecessary
inventory, Unnecessary movement, and Defective products. Chang (2001)
developed a Lean Manufacturing Systems Engineering framework which assists
manufacturers to design a waste-free manufacturing system by aligning the
supply chain, information flow and organizational structure with production.
 35

Lean manufacturing adopt 5S principle in manufacturing. Lynch (2005)

modified the Japanese terms of Lean principle; Seri-Shifting, Seiton-Sorting,
Seiso-Sweeping, Seiketsu-Standardizing, and Shitsuke-Sustaining to Sort,
Store, Shine, Standardize and Sustain. Sheikh-Sajadieh et al. (2013) described
seven zeros corresponding to different types of waste in improvement of Lean
and Agility manufacture which are; Zero accidents, Zero defects, Zero delays,
Zero inventory, Zero breakdown, Zero Changeovers, and Zero Wastes. The aim
of implementation of lean is to be a totally waste-free manufacturing system.
Naslund (2008) found that lean and Six Sigma essentially share the same
fundamental approach to change with JIT and TQM. Integrated model of Lean
Six-sigma has many benefits in process improvement (Thomas et al. 2009). The
lean six sigma implementation resulted in reduction by 55 percent in reject rate,
decrease in cost of reject by 48 per cent, production increase by 31 per cent,
increase in throughput by 50 per cent, energy usage reduction by 12 per cent,
increase in Overall Equipment Effectiveness (OEE), reduction in equipment
down-time from five to two per cent, in a small engineering company in UK.

Collaborative Manufacturing is also called e-manufacturing with

sharing of accurate real-time data and information. Firms have become seekers
of more effective supply chain collaboration of vertical, horizontal and lateral
modes in order to provide quality products with less cost, at the right time and
in the right quantity on account of global competition. Supply Chain members
of the lateral mode seem to outperform horizontal mode on account of liberty to
make decisions (Chan & Prakash 2012). Sustainable supply chain management
framework based on 6R perspective (reduces, recover, redesign, reuse, recycle,
remanufacture) in which 3Rs are at process improvement and remaining 3Rs are
at product design level compliments the interactions associated within intra- or
inter-organizational activities (Kuik et al. 2011).
 36

Intelligent Manufacturing is endowed with the capability of

manufacturing products with minimal supervision and assistance from operators
using production process technology that can automatically adapt to changing
environments and varying process requirements. The goal of intelligent
manufacturing is to satisfy customer needs at maximum efficiency coupled with
lowest possible cost, by leveraging on automatic decision making capabilities
built into manufacturing systems. Ruiz et al. (2011) presents an agent-supported
simulation tool for an intelligent manufacturing system and its influence with
the management of the warehouse applied to a metal-mechanic manufacturing
enterprise. Simulation is a high level tool to aid organizations in their decision
making when implementing BPR when physical system models or logical
mathematic models are too difficult or costly (Kitchen 2002).

Production Planning consists of evaluation and determination of

production inputs such as manpower, machinery and equipment, materials, and
utilities to achieve the desired goals. BPR efforts leveraging on appropriate
technologies allows the manufacturer to move to a “pull” or “build to order”
production method. Through process redesign and technology leverage, the
manufacturer is able to obtain a holistic look at production and alter schedule
on a daily basis to make production process more efficient to satisfy customer
needs. According to Radhakrishnan & Balasubramanian (2008) the main
business benefits are: flexible, multi-purpose production line, increased
productivity, greater viability to production schedule, increase in revenue
through cost reduction, etc. (Kazan 2005) identified nine factors responsible for
effective production and workforce planning which include strategic
management and demands of the labour unions, rapidly changing technology,
customer demands, R&D, TQM, technology selection and usability, learning
organization, KM and firm productivity.
 37

Dey (2001) demonstrated a case of BPR in materials management of

an Indian refinery which led to radical improvement in materials management
by implementing BPR in "materials planning and procurement", and
"warehousing and surplus disposal". The benefits of reengineering include a
reduction in inventory and carrying cost by 30 percent and an increase in
profitability of 15 percent in two years. A similar study of Mohanty &
Deshmukh (2001) on materials management in cement manufacturing industry
record the benefits of faster and more effective learning of skill set, better
utilization of physical assets and human resources, developing knowledge base
for all functional areas, developing infrastructure and networking of individual
work system.

To Maull et al. (2003) there are three type of BPR: Strategic BPR
(SBPR), Process-focused BPR (PBPR), and Cost reduction BPR (CBPR). SBPR
focused on improving service delivery by developing the strategic objectives of
the project with changes to the organizational culture. PBPR mainly focus on
the business process including the management of the organizational
infrastructure surrounding the business processes, and the development of
widely deployed systemic process architecture. CBPR focus on cost reduction,
in organizations where IT is a considerable constraint and they are responding
to an urgent market requirement.

2.1.5 Information Technology and BPR

Many experts, for instance, Martinez (1995), Gunasekaran & Nath

(1997), McKeown & Philip (2003), Attaran (2004), Bhatt & Troutt (2005),
Bayraktar et al. (2009), Kock et al. (2009), etc. have identified the use of IT in
improving the process efficiency. Rapid evolution of IT and the concomitant
cost reduction offer organizations with unprecedented opportunities for change
and improvement.
 38

Martinez (1995) is of the opinion that for success of reengineering,

business leaders and Information System (IS) experts must work together to
strike a balance. In a study on the role of IT in BPR, Gunasekaran & Nath (1997)
held that BPR benefits are achieved through document image processing and
expert systems. Engineer to order companies use IT in the product development,
make-to-stock companies use IT on the whole logistics of supply chain, and
service industries need to use IT in their BPR for improving productivity and
quality. The benefits of IT include Electronic Data Interchange (EDI) benefits
such as Reduced handling costs, Reduced and consistent order cycle lead times,
Reduction in stock, Reduction in risk of lost orders, Security, and Close
relationship with Suppliers and Customers. Attaran (2003 & 2004) point out that
IT has major role in all the phases of BPR /Redesign. IT acts as an enabler in
the first phase and as a facilitator in the second phase, while the process is being
designed. IT also acts as an implementer after the BPR design is complete.
Sometimes IT acts as a barrier to rapid and radical change, as radical change
require IS redesign. Identical findings were also reported by Davenport & Short
(1990). Bhatt & Troutt (2005) found that computers and telecommunications
are a competitive necessity for BPI Initiatives (BPII), which improve internal
and external business processes that ultimately impact customer focus. Eardley
et al. (2008) describe the role of IT as a continuum in BPR. Business process
models with greater communication flow and accuracy had a positive influence
on both the development of a generic IT solution and a greater process redesign
success (Kock et al. 2009). Bayraktar et al. (2009) on their study on identifying
the causal links among supply chain management (SCM) and information
systems (IS) practices on SMEs found that both SCM and IS practices positively
and significantly influenced the operational performance.

Abdel-Meguid (1980) on his studies on the effectiveness of MIS in

public utilities and nationalized industries in UK found that managers’
satisfaction with the information provided by a system is a feasible substitute
 39

for measuring the effectiveness of the system. IT support for reengineering

public administration has been analysed by Saxena & Ammaly (1995).
Effectiveness of public administration is possible through administration
process reengineering facilitated by state-of-the-art information technology. A
steep rise in digital information processing and infrastructure including the
Internet and World Wide Web, have made fundamental societal and economic
changes that are revolutionary in their aggregate impact (Fountain 2000).

Managers operating in competitive contemporary environments need

comprehensive information in order to manage the important parts of the
organization’s operations and thus achieve different strategic goals (Kaplan &
Norton 1996). A sophisticated MIS facilitates organizations with a
comprehensive range of information to achieve strategic performance based on
both flexibility and cost reduction (Fuller-Love & Cooper 1996; Naranjo-Gil
2009). Most of the studies on productivity and usage of IT in manufacturing
sector, reported that the marginal product of IT capital is substantially higher
than the non-IT capital implying excess returns (Lichtenberg 1995). Wong
(2001) finds that the net return to IT capital (37.9 per cent) is about two and a
half times higher than that for non-IT capital (14.6 per cent). To Al-Hashdi
(2002) IT expertise and end user skills, IT infrastructure, Knowledge sharing
through Communication technologies, etc. help in the successful
implementation of BPR.

The role of internet in marketing related activities was established by

a host of researches including Stewart & Pavlou (2002), Varadarajan & Yadav
(2002), Ansari & Mela (2003), Kalaignanam et al. (2008), etc. These studies
established that marketing efficiency can be improved by reducing Marketing
Cost impacted through Decision Information Cost, Quality Cost and Factor
(Labor, Material, Travel, Rental) Cost and Improving Market Place
Performance. These can be achieved through the leveraged use of IT and
 40

internet. Further improvement is possible by enhancements and refinement of

the Organizing Framework, Marketing Operations Efficiency and Intra-firm
Knowledge Sharing.

Grover et al. (1999) found that persons with minimal experience in

computing or flexible cooperative computing have a low readiness for BPR. It
is extremely difficult for such organizations to successfully undertake BPR.
BPR require cross-functional perspective and effective management of change.
Those firms which require BPR implementation should invest in cross-
functional mechanisms, strategic IT thinking and network infrastructure before
undertaking major process change.

ERP is the technique for an integrated management of businesses as

a whole from the viewpoint of the effective use of management resources to
improve the efficiency of enterprise management (Leon 2008). According to
Samaranayake (2009), ERP systems are business software packages that enable
organizations to:
1. Integrate their business functions (sales, production, human resources,
finance, purchase, etc.) throughout the enterprise, using integrated
application modules based on business processes of best-business
practices,
2. Share common data, information, and knowledge throughout the entire
enterprise,
3. Automate critical parts of its business processes and
4. Generate and access real-time information using a single database of all
basic and transaction data.
 41

2.1.6 BPR and ERP

Subramoniam et al. (2009) found that simultaneous implementation

of BPR and ERP is the most effective method in redesigning the business
processes. A suitable BPR approach should be selected based on the
organizational need and constraints faced by the organization. Paper et al.
(2003) demonstrate a case of failed project of ERP implementation. The
management made a mistake of relying completely on software without thinking
of the existing processes before the expensive implementation of the ERP
package. They relied only on outside vendors and did not consider the
knowledge and opinion of the employees of the organization that was the main
reason for failure. Ehie & Madsen (2005) found that BPR is the critical factor
for success of ERP implementation. The study avers that ERP implementation
should be viewed as a system that would transform the company into a more
efficient and effective organization and that successful implementation of ERP
is intricately tied to top management setting the strategic direction of the
implementation process.

KM can be treated as a modern development in IT. KM is an

integrated systematic approach to identifying, managing and sharing all of
enterprise’s information assets, including databases, documents, policies, and
procedures, as well as previously unarticulated expertise and experience held by
individual workers. Fundamentally it is about making the collective
information and experience of an enterprise available to individual worker.
Ryan & Hurley (2004) hold that KM is the latest technique formed by
subsuming the Learning Organisation (LO) and superseding TQM and BPR. It
is found that TQM had the highest world acceptance in 1993, BPR peaked in
1998, learning organization in 2001, and KM in 2002. Also TQM, BPR, LO,
and KM are management practices with overlapping definitions and
functionalities.
 42

2.1.7 Present Approach to BPR

In recent times many developments have taken place beyond BPR.

After implementation of drastic change in Business Processes, continuous
modification and improvement are required to make the organization most
efficient and competitive. Some of the related techniques used recently are BPM
and KM. Davenport (1993b) proposed four approaches for integrating TQM
and BPR – the Sequential Method, the Process Portfolio, BPR for high-level
design of process & TQM for detailed process, and TQM within BPR.
Kondareddy (1998) reported about a change taking place from BPR to
integrated process management. For the full success of BPR, the report
suggested that BPR should share with other change strategies such as BPI,
TQM, etc. along with extended vision of the integrated process management
approach using process modelling tools, workflow management systems, and
use of ERP packages. According to Nwabueze (2012):
“…high failure rate of improvement programmes based on
BPR, TQM, Quality Function Deployment (QFD) and more
recently, Six Sigma, is because each of these models is not a
standalone operational tool, and thus a hybrid model, which
encompasses two or more is usually the best approach to bring
about dramatic improvement in operational quality, speed, cost
and service and product reliability”

BPM is now being used in world class organizations for most

efficient management of Business Processes. BPM is all about the efficient and
effective management of business processes – people are at the centre of
business processes, so make them part of the solution (Jeston & Nelis 2006).
Goldkuhl & Lind (2008) advanced two contrasting views of BPM viz. ‘process
as workflow’ - transformative view and ‘process as the coordination of work’ -
coordinative view. Watts (1995) and Al-Mashari & Zairi (2000) stressed the
importance of holistic view of BPR implementation. Andreu et al. (1997)
propose a holistic model relating different elements relevant in change
 43

programme implementation and their model consists of seven elements: Vision,

Strategy, Processes, IS, Organization, Individual, and IT. To Alavi (2011) the
process management initiatives are: TQM, BPR, Continuous Improvement, ISO
9000, Benchmarking and Lean Manufacturing. Chung et al. (2008), on
analysing the processes of a manufacturing plant using the ‘Parato Principle’
found that, the major reasons for slow work pace were insufficient facilities,
aged facilities, unbalanced manpower, incomplete examination of previous
work, bad moving line, over complicated process and employee neglect. The
major suggestions made are: strengthening educational training, reducing the
defect rate, and reducing repetitive tasks.

Denton (2012) is of the opinion that it is time for “Reinventing

Reengineering” in the new age where real-time communication technology and
social media software make it possible to re-engineer business processes on a
continuous basis and across organizational boundaries. Data visualization
software helps in tracking processes in Real time graphical display.

2.2 BPR EXPERIENCE IN VARIOUS COUNTRIES

BPR experiences are different in different countries. To Jarrar &

Aspinwall (1999) though BPR is globally accepted, success was reported more
in US and UK. Out of the total successful implementation, about 59 per cent are
in USA, 22 per cent in UK, 8 per cent in Europe, 5.5 per cent in Japan, Singapore
and Korea and only 5.5 per cent to the rest of the world. The authors reported
further that about 69 per cent of the cases are radical (more than 60 per cent
improvement over the old way of working), 28 per cent of the cases major (30
to 60 per cent) and three per cent of the cases incremental benefit (less than 30
per cent improvement) from BPR implementation. Lack of BPR implementation
is mainly due to resistance to change from traditional organizational concept.
Cultural critical success factors identified are: Employee Involvement and
 44

empowerment 39 per cent, New reward and recognition system 36 per cent,
Customer focus 35 per cent, and Emphasis on soft skills (attitude) 16 per cent.
Structural critical success factors are: Cross functional teams and teamwork 80
per cent, Top management commitment 78 per cent, Continuous and
comprehensive communication 70 per cent. Process critical success factors are
Training (train, train, train, and retrain) 57 per cent, Pilot study (quick hit) 50
per cent, Assign the 'best' people for reengineering 47 per cent, Involve outside
consultants 45 per cent, Clear vision 31 per cent, Customer focus 30 per cent,
Top down approach 19 per cent, and Benchmarking 15 per cent. In a survey of
international experience of BPR in various countries Al-Mashari et al. (2001)
found that most organizations are into BPR mainly due to pressure of survival,
close competitive gaps and achieve superior performance standards.

2.2.1 BPR Practices in Developed Countries

Singapore, the City State seems to head the initiatives on BPR. A

survey of BPR practices in Singapore by Ranganathan & Dhaliwal (2001)
revealed that about 50.4 per cent of the Singapore firms had some BPR projects
in place or under implementation. Another 29.1 per cent intend to take up BPR
projects in the next 1-3 years. As against this USA had only 45 per cent of firms
involved in BPR projects. In UK, service sector firms had implemented BPR
than in manufacturing sector but in Singapore, manufacturing firms had
implemented BPR more than that of service sector. A survey conducted during
1993 of 224 senior information executives rated re-engineering as "the most
important current management issue". The study conducted by Kuwaiti (2000),
reported that 72 per cent of American and 21 per cent of UK companies and
establishments were undergoing major improvement programmes.

Top three benefits reported in Singapore are: improving operational

efficiency, improving customer service, and reducing cost (Ranganathan &
 45

Dhaliwal 2001). This echoes the CSC/Index survey results on the top three
benefits of North American firms as improving the speed of business process,
cost cutting, service and quality improvement. While improving efficiency and
cutting costs are important benefits of BPR implementation in USA and other
developed nations, facilitating communications & improvement of information
sharing was focused by Chinese executives.

Organizations-wise, IBM Credit, Texas Instruments, Ford, Xerox

and National Provincial have adopted BPR to improve their performance
(Hammer & Champy 1993). As per the study reported by Cantwell (1993), Bell
Atlantic Telephone cut cycle time from 15 to 3 days, and reduced labour cost
from eighty-eight million to six millions. The Annual Report 1993 of Grand
Thornton Survey of American Manufacturers reported that 95 per cent of
virtually all US mid-size manufacturers over the past three years had formally
analysed their companies for areas to reduce costs, improve quality and increase
speed. 30 per cent of these have reorganized their entire operation, while 66 per
cent limited their change to discrete functions of departments. Those who
reorganized the entire organisation had achieved dramatic improvements, while
only 16 per cent of those with limited scope of change have reported dramatic
improvement.

Paper et al. (2001) conducted a BPR case study at Honeywell,

Pennsylvania, USA. This case study demonstrates a BPR case having a drastic
improvement by reducing the defect rate by 70 per cent, customer rejects by 57
per cent, cycle time on parts by 72 per cent, inventory investment by 46 per cent,
and customer lead time by 70 per cent. Mahmood et al. (2009) conducted a study
in ISUZU HICOM Malaysia Co. Ltd. (IHM) to review how an automotive
manufacturer sustained the SCM after BPR. The study reveals that BPR has
improved SCM at IHM. Introduction of e-procurement indirectly enhanced the
supply chain information system as well as productivity and reduced supply
 46

errors. The problem on delivery and outsourcing, the major problem in IHM
was managed properly in short period with better production systems and the
new business operation encouraged the employee to do work better.
Involvement of top management in every single activity was one of the main
reasons for the SCM success in IHM.

The managers of Slovenian organizations have very different

attitudes about BPR projects and attempts. 83 percent of organizations in
Slovenia performed BPR initiative Kovacic (2001). IT represents the key role
in Business Process Renovation. Improving business effectiveness or tangible
benefits by reduction in costs, shortening the business cycle, and quality
improvement are the main reason for undertaking the projects. There are more
problems in public sector than private sector and the problems of efficiency are
solved by purchasing computers.

2.2.2 BPR in Developing Countries

BPR implementation in developing countries is generally limited

compared to the developed countries. Given below are just few experiences
from China and India.

Saxena (1996) studied the Public Administration Re-engineering

(PAR) in developing countries. Many corporations in China tried their best to
reform their own management systems from original central planning economic
systems into market economic systems by some design reengineering to win the
competition in the market. They had a co-research project for process
reengineering with a large aircraft manufacturing company for several years.
The project focuses on improving the critical business processes in order to set
up a lean, flexible, responsive, competitive, innovative, efficient and customer
focused management system. Ping (1995) described a case study of BPR of a
 47

large aircraft manufacturing company. The major reengineering activities they

implemented include:
1. A new planning and scheduling system as per the discipline of JIT,
2. Changing production planning organizations from four levels into one,
3. Implementing four kinds of schedules in production planning system
such as products delivering schedule, master production schedule,
production cycle schedule and production date schedules,
4. Setting up a new personnel management system accepting the standard
work hours, learning curve and capacity balance theory,
5. Redesigning the assembly process and
6. Designing and implementing the computer information systems for
supporting redesigning.
Hin (2005) investigated the status of BPR in China. The study
showed that 32 of them have implemented or undertaking BPR, 47 are planning
to implement BPR in 3-5 years, 15 will not implement BPR, and 16 no decision
has been made yet. Out of 32 companies that implemented BPR, 13 reached all
objectives, 15 reached most of objectives and no company had negative effect.
The main success factors of BPR in China as per Hin (2005) are: Management
support, Improving cross-functional communications, Cross-unit project team
composition, and Measurable BPR objectives. The major obstacles were: A
culture that resists changes & New ideas (73 per cent), Lack of innovation
incentives to State-Owned Enterprises (SOEs) (72 per cent), Seniority based
promotion (62 per cent), Unemployment pressure of process restructuring (57
per cent), Lack of senior management commitment (55 per cent), Lack of a
coherent BPR strategy (50 per cent). Most Chinese firms prefer incremental
continuous improvement approach to revolutionary reform method (Luo 2002).

In spite of tremendous scope offered by the present competitive

environment, full-fledged implementation of BPR is not found anywhere in the
corporate scenario in India. Koshy (2015) gave some of BPR experience in
 48

Indian Industry. Due to the implementation of BPR in Mahindra and Mahindra

during 1994, productivity increased six times. In State Bank of India (SBI),
business per employee increased by 250 per cent over five years due to BPR
implementation. Oil and Natural Gas Corporation (ONGC), India’s largest Oil
exploration and production Company, also implemented BPR in most of their
business activities. In India, Central Board of Excise and Customs, Housing
Development Finance Corporation (HDFC) had implemented and highly
benefited from BPR. HDFC, Bombay, has redesigned its service quality
management process with benefit of cutting down cycle time and decentralizing
the loan-appraisal system. The redesigned tax administration process is enabled
through a fully networked, country wide, information driven system there by
increasing the satisfaction of tax payers and is expected to increase the tax
receipt by 10 per cent. India has also re-engineered the Customs Administration
process to minimize the delays and improve its performance. By the
introduction of ‘Indian Customs Electronic Data Interchange System’ (ICES) in
their import declarations and export document processing modules, the number
of queries of custom personnel reduced to just five per cent.

Dey & Banwet (1999) studied the improvements in Materials

Management due to implementation of BPR in Indian Oil Corporation during
1998. Some of the benefits achieved were: Improvement in Total number of
steps-74 per cent, Total Hands on time (days) -21 per cent, Total Elapsed
time(days) -70 per cent, Total processing cost- 61 per cent, Total number of
approvals -72 per cent, and Customer value-53 per cent. Mohanty & Deshmukh
(2001) conducted a study on BPR project relating to the materials management
function of a cement manufacturing plant in India. It is understood that BPR is
a multidimensional problem solving approach to generate multiple benefit paths
for the multiple stakeholders. Ramani (2006) conducted a study on IT-based
Process Reengineering in Gujarat Cancer Research Institute and showed that a
saving of 8 per cent (which amounts to Rs.45,62,561/-) in annual costs of
 49

purchases and improved the availability of materials to the user departments

along with so many other tangible and intangible benefits.

2.3 PUBLIC SECTOR UNDERTAKING

A public enterprise is that “organization which combines in itself

elements of ‘publicness’ and ‘enterprise’ (Ramannadham 1991). PSUs are
instituted both at the Central and State levels. Section 1.1, Chapter 1 gives a
clear definition of a state PSUs and a Central PSUs. The fundamental
characteristics of the public sector are: The major operational decisions are
made by non-private agencies, the net benefits of operations accrue to public,
the enterprise is accountable to society, the price change should be related to
costs, and by intention it is expected to be viable in long run.

2.3.1 State Public Sector Undertakings in India

Public sector enterprises have been conceived in India for

dismantling the accumulated problems of unemployment, reducing (if possible
eliminating) rural, urban, inter-regional and inter-class disparities, reducing
technological backwardness, setting up a socialistic pattern of society, etc. The
paramount objective of starting the public sector in India was to build
infrastructure for economic development with social justice. However, the
economic compulsions of deterioration of Balance of Payment position and
increasing fiscal deficit led to adoption of a new approach towards the public
sector in 1991 (Baygan 2005). Promotional role of PSUs in the development
scenario of India is well acknowledged. Until the early 1990s it helped
industrialization, generation of employment, and dispersal of industries to
different parts of the country (Antony 1992; Kanungo et al. 2001). While the
global recession of 2008 rattled the economies of most of the developed
countries, Indian economy remained mostly unaffected on account of the special
 50

role that PSUs enact (Kareem 2011). However, the maladies afflicting Indian
PSUs leading to low capacity utilization has been subjected to criticism.

Prior to Independence, there were just a few ‘Public Sector’

Enterprises in the country. As per the Annual Report on the Performance of
Central Public Sector Enterprises, Public Enterprises Survey 2008-09
(Government of India 2010), the number of PSUs in India, excluding Banks,
Railways, Ports, etc., increased from five (with investment of Rs.29 crores) in
1951 to 246 (with investment of Rs. 528951 crores) in 2009.To the Economic
Survey 2007-2008 (Government of India 2009), the employment potential of
PSUs was over 60 per cent during the period from 1971 to 2005.According to
Mahadevan (2010):

"In India, there are 240 Public Sector Enterprises outside the
financial sector. These enterprises produce 95 percent of
India’s coal, 66 percent of its refined oil, 83 percent of its
natural gas, 32 percent of its finished steel, 35 percent of its
aluminum, and 27 percent of its nitrogenous fertilizer. Indian
Railways alone employs 1.6 million people, making it the
world’s largest commercial employer. Financial sector SOEs
account for 75 percent of India’s banking assets."

India has three types of State Owned Enterprises:

1. Departmental Enterprises,
2. Statutory Corporations (established by an Act of the State Legislature
and wholly owned by the state) and
3. Government Limited Companies. According to the Public Enterprise
Survey of Government of India (2010) there were 246 CPSEs (excluding
7 insurance companies) during the period 2008-2009. In this period, four
enterprises have been closed or merged with the holding company or lost
their SPSE status. Further, eight new enterprises have been added to the
list of CPSE. Out of the 253 CPSEs, 213 units are operating enterprises,
 51

33 are enterprises which are yet to commence commercial operations and

7 are insurance companies.

Dr. Manmohan Singh (Singh 2009) recalls that when the process of
liberalization began in the early 1990s, many experts predicted that public
enterprises would not be able to face local and increased global competition, but
such fears and apprehensions were proved wrong. Mohan (2002) examined the
issues of privatization in the context of relative performance of Public and
Private Sectors. It is found that the efficiency gap between private and public
enterprises had widened after the liberalization reforms due to operational
autonomy for public enterprises. It is further found that due to limited
privatization taken place in the form of selling a portion of the government's
shareholding to other shareholders, there was no major improvement on an
average.

No doubt, Public Sector is of paramount importance to the country,

but many central and state public sector units were closed down due to heavy
loss. According to data published by Department of Public Enterprises (2014),
there were 229 working CPSUs under the administrative control of various
Ministries / Departments as on 31.3.2013. Out of these 79 CPSUs incurred loss.
The ‘net loss of these enterprises came to Rs. 28,260 crores during the year
2012-13. The GOI formed the Board for Reconstruction of Public Sector
Enterprises (BRPSE) in December, 2004 for taking measures to
restructure/revive, CPSUs. During 2004 to 2011, cases of 67 sick CPSEs have
been referred to BRPSE. The Board has made recommendations in respect of
62 cases out of which the revival of 43 cases has been approved by GOI as on
31.10.2011 (Department of Public Enterprises 2012).
 52

2.3.2 BPR in Public Sector

Rahimi (1996) argues that it is high time that PSUs in India go for
BPR as more than 70 per cent of large corporations, world over, have indulged
in BPR, by 1996. Macintosh (2003) and Rinaldi et al. (2015) bring to light the
similarities and differences in implementing BPR in Private sector and public
sector. McAdam & Donaghy (1999) brought out that rigid hierarchies, culture,
multiple stakeholders for many processes, sudden and dramatic changes in
policy direction, overlap of initiatives, and wide scope of activities are factors
offering scope for application of BPR in PSUs. According to Schacter (2000)
reforms are needed to strengthen PSUs that are poorly organized, with irrational
decision-making processes, staff mismanaged, weak accountability, poorly
designed public programs and poorly delivered public services. Aside from the
benefits of process reengineering, it provides considerable improvement in
efficiency and effectiveness enabling the organization to earn for itself the
envious status of a vibrant, dynamic and progressive concern (Zaheer et al.
2008). On the specifics of BPR implementation in public and private sectors
MacIntosh (2003) recommended both radical and incremental changes. Nandan
& Verma (2013), identified four change outcomes, namely enhancement in
employee involvement, improvement in employee performance management,
improvement in work environment, and improved organizational systems. To
Halachmi (1996), experience of BPR in other organizations may not be readily
applicable to the situation in a PSU but each reengineering effort must be
tailored to the specific needs and circumstances of each case. Weerakkody et al.
(2011) recommends that Government-induced change requires a plan for a
radical improvement.

In spite of immense scope for implementation of BPR in PSUs of

Kerala, excepting just about a couple of studies on Organizational Change
through BPR not many have occurred. For a Gap Analysis & Business Process
 53

Re-engineering requirements for the e-District project of Kerala, Wipro

Consulting Services (2009) conducted a study. This project was intended to
create an automated workflow system for the district administration and help in
providing efficient services through Akshaya portal in Kerala. In this study, key
services were identified. Present state of its services is compared with that of
best practices in other countries. A suitable model has been developed for the
service requirement of Kerala. ‘Business Process Reengineering (BPR) Report
for State wide rollout of e-District in Kerala’ was prepared by State Program
Management Unit (SPMU) with the help of Wipro Consulting Services under
Kerala e-District project during 2013 and 2014 modifying earlier project and
incorporating the comments of State Designated Agency (SDA) and National
Program Management Unit (NPMU).

2.4 PERFORMANCE FACTORS AND PERFORMANCE

MEASUREMENT TECHNIQUES

Kuwaiti (2000) highlights the lack of proper performance

measurement as the main obstacle to BPR implementation and emphasizes the
need for systematic design of a Performance Measurement System (PMS).
Performance measures have been defined as a tool to compare actual results
with a pre-determined goal and to measure the extent of any deviation.
According to Walsh (1996), the purpose of performance measurement is to
evaluate and quantify the current state of the company, and highlight where
improvement has been made and which areas need to be improved. Maskell
(1991) developed a framework for performance measurement of companies
with track record of world class manufacturing with five broad categories
namely Quality, Delivery, Production process times, Flexibility and Costs.
Quality measures are Incoming quality, Statistical process control, Customer
satisfaction and Inventory accuracy. Delivery measures consists of On-time
schedule, Schedule adherence, Number of past due orders, Order changes and
 54

schedule changes, and Vendor delivery performance. Process Time Measures

are Process time-Delivery ratio (P:D), Material availability, Set-up times,
Machine down time, and Distance travelled. Flexibility Measures are; Number
of different parts, Percentage of standard, Common and unique components,
Number of different processes, Position of the variability, Number of levels in
the bill of materials, and Number of new products per year. Cost Measures
consists of Waste rate, Direct labour productivity, Work- in-progress turns and
Inventory turns, and Non-value added production steps. Framework by Tincher
(1994) is based on five generic factors namely Quality, Cost, Flexibility,
Reliability and Innovation.

Naor (2006) gives a methodological approach to Performance

measurement by developing subjective and objective measurement scales. The
Subjective factors are; Cost-Inventory turnover, Cycle time, Unit cost of
manufacturing; Quality- product capability and performance, Conformance to
product specifications; Delivery - On time delivery performance, Fast delivery;
and Flexibility - Flexibility to change product mix, Flexibility to change volume.
Objective Performance measurement scales are; Quality- percentage of internal
scrap and rework; Delivery- average lead time from the receipt of an order until
it is shipped (in days), Flexibility - Percentage of change in the master
production schedule from month to month in aggregate, and Cost-
Manufacturing costs / Sales value of production.

Some of the well-known performance measurement techniques are:

1. Financial Performance Measurement
2. Production Function Approach
3. Performance based on key internal business processes and critical
success factors
4. Strategic measurement analysis and reporting technique (SMART)
5. Performance prism
 55

6. Performance measurement based on Quality Management Systems

7. Quality Function Deployment (QFD) based performance measurement
tools
8. Supply Chain Operations Reference Model (SCOR)
9. Performance measures by Balanced Scorecard
10. Performance based on Human factors
11. Marketing Management Performance
12. Integrated Performance Measurement System (PIMS)
13. Integrated Manufacturing Performance Measurement and Evaluation
Framework
14. Measurement of organizational excellence

Performance Measurement Techniques are also categorized into

traditional measures and non-traditional measures. Non-traditional measures are
of two categories; individual measures and integrated measures. Major
performance measures are given in Table 2.1.

Performance measures can also be categorized into financial and

non-financial performance measures. Traditionally managerial performance is
measured financially using earnings, return on investment, various financial
ratios etc. Non-financial performance such as product quality, customer
satisfaction, market share etc. are better measures for managerial performance
and better predictors of long-term performance (Srinivasan 1997).
 56

Table 2.1 Categories of Performance Measures

Non-traditional measures
Traditional measures
Individual Measures Integrated Measures
1. Profit 1. Customer satisfaction 1. Balanced scorecard
2. Return on 2. Delivery reliability (BSC)
investment (ROI) 3. Process time 2. Performance pyramid
3. Productivity 4. Production flexibility 3. Performance
4. Inventory turns 5. Delivery lead time measurement
5. Purchase price 6. Quality Questionnaire (PMQ)
variance 7. Cost
6. Labour efficiency
7. Cash flow
8. Machine utilization

2.4.1 Financial Performance Measurement

Ratio Analysis

Varies financial ratios are used for evaluating the financial

performance of organizations by various financial experts. Some of the
important financial ratios used by various authors are discussed below.

Antony (1992) used the following important financial ratios to

analyse the profitability of central public sector enterprises in Kerala:
1. Operating profit margin- the ratio of operating profit to operating
revenue
2. Net profit margin- ratio of net surplus to operating revenue
3. Operating ratio -the ratio of operating costs to operating revenue
4. Return on investment
a. Return on capital employed
 57

b. Return on net worth

c. Return on equity capital

Performance is the outcome, output, or result from the decisions and

actions in an organization’s structure (Anderson & Lanen 1999). Financial ratios
are generally of six categories: Efficiency, Growth, Leverage, Liquidity,
Solvency, and Sufficiency (Crombie 2002). Efficiency is measured by using the
ratios: Fixed Asset Turnover, Inventory Turnover, Operational Efficiency, and
Marginal Efficiency. Change in Sales is a measure of Growth. Leverage is
measured by Debt to Equity. For measuring liquidity, Current Ratio and Quick
Ratio are used. Solvency is measured using the Ability to generate sale,
Coverage ratio and Return on sales. Sufficiency can be measured by Debt
coverage and Reinvestment.

Profitability ratios are used for the measurement of profitability or

operating efficiency of the firm. Profitability of an enterprise is the ability to
earn profit from all the activities of an enterprise. Asiedu (2005) used NPR as a
main tool for comparing the performance of Canadian firms and he also used
the mean NPR of all the years of the study to evaluate the performance of the
firms. Zala (2010) used Profitability ratios - NPR and ROCE in his research
study for analysing the Productivity and Financial Efficiency of Textile Industry
of India. He used two types: Profitability ratios in relation to Sales-Gross Profit
Ratio, Operating Profit Ratio, NPR, and Profitability ratios in relation to capital
employed - Earning Per Share (EPS), ROCE, Return on Net Worth. NPRs are
used by Ahlawat (2012) to measure the overall Profitability Performance of the
Power Corporations of Haryana.

According to Cinca et al. (2005), the average NPR of small, medium

and large firm is 0.24 with Standard deviation of 0.054 and that of Return on
 58

equity is 0.076 and 0.239 respectively. Keener (2007) compared various type
restructured firms using NPR and got the following results:
Distressed, Non- Bankrupt Firms, Mean NPR= -1.15
Distressed, Bankrupt Firms, Mean NPR= -2.18

According to Lammie (1959), ROCE is the best common

denominator to measure management’s use of existing capital and to plan for
commitment of future capital to maximize profits. The ratio of ROCE is used in
industry to assess the performance of the company and also to measure
managerial effectiveness (Bentley 1977). Muth (1954) notes that ROCE is a
measure of performance and is used for the comparison of performance of
enterprises. On analysis of ROCE of 15 representative companies during 1953,
he found that ROCE varies from a maximum of 14.6 per cent to a minimum of
6 per cent. Coggan (2001) is of the opinion that decline in return on capital may
point to trouble ahead, in a low inflation, highly competitive and globalized
economy.

One of the methods of performance evaluation in manufacturing

organization is the popular ‘production function approach’ which was used by
Seetharaman (2000) in measuring the Financial Performance of Selected Heavy
and Medium Public Sector Engineering Enterprises in India. The methods used
are: Trends in Capital-Output Ratio, Trends in Gross and Net Value Added, and
Partial and Total Factor Productivity.

2.4.2 Predicting Financial Distress of Companies

For assessing the sickness and financial distress of the organizations,

experts have developed various models. Some of the popular models are: Z-
Score models developed by Altman (1968 & Altman et al. 1977), Kida's Z-Score
Model (Kida 1998), integrated model of Rough Set Theory (RST) & Support
 59

Vector Machine (SVM) proposed by Cao et al. (2011) and Sickness prediction
model of Gupta (1983).

Altman (1968) developed a discriminant function for the evaluation

of financial performance of an organization called 'Z score model' for predicting
the Financial Distress of Companies. The discriminant function
Z=V1X1+V2X2+……+VnXn transforms individual variable values to a single
discriminant score, which can be used for comparing the performance of
organizations. Here V1, V2, ……,Vn represents the discriminant coefficients,
and X1, X2, ……..Xn represents the independent variable related to various
performance ratios.

A discriminant function developed for an organization is

Z = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 +0.999X5
Z = overall index.

The value of Z is an indication of the financial health of the

organization. A cut off value of Z=2.67 is fixed for testing the firm, based on
data from one financial statement prior to bankruptcy or default on outstanding
bonds. The expected accuracy is 94 per cent. A more conservative approach is
to use a cut off score of 1.81 which gives an accuracy rate of 84 per cent.

Further this model is revised in Altman et al. (1977) and called Z-

Score and ZETA® CREDIT RISK Model. The revised Z-Score model with a
new X4 variable for the manufacturing firm is:

Z’ = 0.717(X1) + 0.847(X2) + 3.107(X3) + 0.420(X4) + 0.998(X5)

Here X4 is the ratio of Book value of Equity (instead of Market value

of Equity used in first model) to Book value of Total liability.
 60

The lower boundary is now 1.23 as opposed to 1.81 for the original
Z-Score model. The level of financial distress is predicted as given below:
Bankrupt group mean=0.15; and non-bankrupt group mean=4.14
Z’ <1.23- Zone I or ‘Distress’ Zone (no errors in bankruptcy classification)
Z’ >2.9 -Zone II or ‘Safe’ Zone (no errors in non-bankruptcy classification)
1.23<Z’< 2.9 – ‘Grey’ Zone (Z value 1.23 to 2.9)

This model seems to be very useful for predicting financial

performance of manufacturing organizations. Altman (2013) found that this
model is accurate in predicting bankruptcy up to five years prior to failure, 90
per cent case one year prior and 70 per cent case accuracy up to five years.

Similar to Altman’s Z-Score model Kida's (Kida 1998) Z-score

Model also use five separate financial ratios for predicting financial
performance and bankruptcy. In this model:
Z = 1.042X1 + 0.42X2+ 0.461X3 + 0.463X4 + 0.271X5

Here also, Xn represents the independent variable related to various

performance ratios. As per Kida's model companies having a Z-score greater
than 0.38 are considered as having a good sign for being successful and those
which have a Z -score less than 0.38 had potential serious problems and may
not be able to continue. Alkhatib & Al-Bzour (2011) found that percentage rates
and prediction frequencies for Altman Z-Score are better than those of Kida's
Z-Score.

Cao et al. (2011) proposed an integrated model of Rough Set Theory

(RST) and Support Vector Machine (SVM) for predicting financial distress of
companies. Support vector machine is based on statistical learning theory. The
study proved that the integrated model of RST and SVM has highest prediction
accuracy and most effective in predicting financial distress of companies.
 61

Gupta (1983) developed a Sickness prediction model to distinguish

between sick and non-sick companies on the basis of financial ratios. He studied
the predictive power of 63 financial ratios and identified two ratios that have
comparatively better predictive power. He also stressed the importance of
revival/rehabilitation of those units predicted as sick units using these financial
ratios.

2.4.3 Non-Financial Performance Measurement

There are a wide variety of non-financial performance

measurements, a few of which are discussed below:
1. Performance Pyramid
2. Strategic Measurement Analysis and Reporting Technique (SMART)
3. Performance Prism
4. Quality Management System (QMS)
5. Quality Function Deployment (QFD)
6. Supply Chain Operations Reference Model (SCOR)
7. Quantitative models for performance measurement systems (QMPMS)
8. Performance Measurement Questionnaire (PMQ)

The Performance Pyramid (Cross & Lynch 1989) consists of four

levels of objectives which address external effectiveness and internal efficiency
in operations. The contents of each level are as follows: Top level-Vision;
Second level-Market and Financial performance; Third level-Customer
satisfaction, Flexibility and Productivity; and bottom level – Quality, Delivery,
Cycle time and Waste.

Strategic Measurement Analysis and Reporting Technique

(SMART), hierarchy of objectives and measures was developed by Wang
Laboratories, Inc. The basis for SMART is Performance Pyramid (Cross &
 62

Lynch 1989). At the top of the hierarchical structure is the corporate vision or
strategy. The second level consists of the goals for the Market and finance, the
third level involves the business system objectives of customer satisfaction,
flexibility and productivity and the last is the departmental and work centre
performance criteria consisting of quality, delivery, process time and cost. For
measuring the performance of an organization, performance measurement for
each of these goals, objectives or criteria are required.

Performance Prism is a five-faceted performance framework, which

include stakeholder satisfaction, strategies, processes, capabilities and
stakeholder contribution (Neely et al. 2002). It emphasizes on stakeholder
requirements as well as in aligning capabilities required to operate the processes.
It also includes a new dimension in identifying the stakeholders’ contribution,
required in order to maintain and develop these capabilities.

Jagdev et al. (1997) conducted a study on Quality Function

Deployment (QFD) based performance measurement tool, which can identify
and measure the performance that closely reflect the concerns of the customer
and to ensure that these performance measures are used in the re-engineered
business process. This methodology involves building of a QFD chart which
would identify the performance measures that meet customer requirements as
well as targets for and conflicts between the different performance
measurements.

Hamali (1999) studied the effect of quality management system

(QMS)and performance measurement in a Public Sector Organization. The
study identified the following nine factors as critical for the implementation of
QMS in Public Sector Organizations, viz:
1. The need for a "Bottom-up" approach
2. To be clear on the process to be documented
 63

3. QA documentation must be made as simple as possible

4. The need to convey to the staff that they were the experts in the work
processes to be documented.
5. Full awareness on the benefits of the system is a necessity
6. Management commitment
7. QMS must not be seen as a ‘one off’ programme
8. Allowing the staff to be totally involved
9. QMS must be treated as part-and-parcel of the everyday work of the
organization.

Supply Chain Council, a global corporation, has developed Supply

Chain Operations Reference Model (SCOR), a widely accepted tool for the
performance measurement of supply chain operations (Stephens 2001). This
model is based on the supply chain processes and management processes of
plan, source, make and deliver. Lai et al. (2002) demonstrated a SCOR model
comprising of four metrics: Cycle time metrics, Cost metrics, Service quality
metrics and Asset metrics. Average and best performance score for level 1
metrics are given in Table 2.2.

Table 2.2 Supply Chain Performance Measures in SCOR model

SCORE level 1 metrics Average Best

Delivery performance (in %) 85 95
Fill rates (in %) 94 98
Perfect order fulfillment (in %) 80 90
Total logistics costs (in %) 13 3
Order fulfillment lead times (in days) 7 3
Production flexibility (in days) 30 20
Inventory days of supply (in days) 55 22
Cash-to-cash cycle time (in days) 80 28
Net asset turns (in turns) 8 19
 64

Suwignjo et al. (2000) used an analytical hierarchy process model

called Quantitative models for performance measurement systems (QMPMS) to
quantify the factors on performance. Three main steps identified in this model
are: factors affecting performance and their relationships; structuring the factors
hierarchically; quantifying the effect of factors on the performance. The model
uses cognitive maps, cause and effect diagrams, tree diagrams, and the analytic
hierarchy process.

Dixon et al. (1990) developed a questionnaire based diagnostic tool

for performance measurement called the performance measurement
questionnaire (PMQ) to check the relationship between an organization’s
strategy, actions, and measures. PMQ consists of four parts: first part provides
general data to be used to classify the respondents, second part assesses
company’s competitive priorities and performance measurement system, third
part deals with opinions on the relative importance of a range of performance
factors and the extent to which these are currently given emphasis by the
company and the last part is on the performance measures that best evaluate
their own performance and to make any comments they wish about the
questionnaire.

2.4.4 Human Resources Performance in the Public Sector

Armfield (2005) probed whether alignment of HR with

organizational goals and objectives resulted in better PSU performance. The
biggest challenges of the public sector were conducting workforce planning,
strengthening training and development, implementing pay-for-performance,
and creating strategic human capital offices. The study vindicated that
individual and organizational performance has improved by deploying human
capital initiatives in Public sector.
 65

Lee (2000) conducted a study on the Public Sector employee’s

commitment and willingness to support productivity improvement strategies.
Productivity improvement depends on a variety of factors including top
management support, committed people at all levels, performance measurement
system, employee training, reward structures, community involvement and
feedback and correction on budget-management decisions. Employee’s
willingness to support productivity is one of the major factors for productivity
enhancement in every organization especially in government organizations.

Organizational performance was found to be significantly influenced

by organizational culture and external environmental factors by Swner (2000).
The need for considering the current and preferred organizational culture, during
the times of tremendous change, in order to assure the organization’s continued
strategic relevance and workforce competency was established (Rumble 2006).

Other studies include marketing productivity issues (Shetha &

Sisodia 2002), marketing performance assessment (Morgan et al. 2002), etc.
Dickson (1996) defined productivity in the context of marketing as ‘effective
efficiency’. Marketing performance is a dynamic and multidimensional process
(Dickson 1996) with four stages – sources of advantage, positional advantage,
marketing performance outcomes and financial performance outcomes (Kaplan
& Norton 1993a).

2.4.5 Integrated Performance Measurement System (IPMS)

Integrated Performance Measurement System involves the use of

various performance measures from different disciplines to measure the
performance of an organization. Performance measures can be financial, non-
financial, traditional, non-traditional, statistical, or any method suitable for the
context.
 66

Medori (1998) developed an Integrated Performance Measure

Framework Structure with six competitive priorities viz. quality and customer
satisfaction, manufacturing time, delivery, flexibility, cost and future growth.
These priorities are the 'drivers of future performance'. The Table 2.3 depicts
the six competitive priorities along with the types of measures developed and
used by some of the world class manufacturing organizations (WCM).

Table 2.3 Competitive priorities and types of measures of the WCM

Competitive Priority Ranking Type of Measure Utilized
1 Supplier Quality
2 Warranty Claims
3 Inventory Accuracy
Quality
4 Survey: Customer and Staff
5 Process Capability
6 Customer Complaints
1 Absenteeism
2 Scrap
Cost 3 Stock Turns
4 Safety
5 Inventory
6 Rectification
7 Labour Productivity
1 Cross-Training
Flexibility 2 Engineering Changes
3 Set-Up Time
1 Lead-Time
Time 2 Machine Down Time
3 Material Availability
1 Schedule Adherence
Delivery 2 Customer Late Delivery
3 Supplier Performance
4 Supplier Lead-Time
1 New Product Introductions
Future Growth 2 Market Share
3 Total Quality Teams
4 R & D Expenditure
Source: Medori (1998)
 67

Development of an integrated Manufacturing Performance

Measurement and Evaluation Framework was again attempted by Huang
(2000). He had done an in-depth analysis of various performance measures
developed by various experts. The performance measures are mainly in five
categories such as: Quality measures, Speed measures, Flexibility measures,
Cost measures, and Delivery measures. Most of these measures are similar to
those proposed by Medori (1998).

Gomes et al. (2004, 2011) examined manufacturing organizations'

performance evaluation practices and identified 63 measures of financial and
non-financial measures in eight categories: (A) Financial - 9 measures, (B)
Product quality and customer satisfaction -7, (C) Process efficiency -13, (D)
Product and Process Innovation - 5, (E) Competitive environment -9, (F)
Quality/ independence of management - 7, (G) Human resource management-9
and (H) Labor-management relations - 3 measures.

Effective performance measurement system (PMS) in a supply chain

should have the components of structure, speed and salience (Morgan 2004).
The major requirements of performance measures are: PM must be linked with
organization strategy; it should be part of integrated control system; it should
have internal validity and enable proactive management; and PM should be
dynamic, intra-connectable, focused and usable.

2.4.6 Performance measures by Balanced Scorecard

To Kaplan & Norton (1996) the performance measurement should

be done in four different angles: Financial perspective, Customer perspective,
Internal business process perspective and Learning and growth perspective. The
company’s vision and strategy can be translated into these four perspectives.
Kaplan & Norton (2001) published a paper on transforming the Balanced
 68

Scorecard (BSC) from Performance Measurement to Strategic Management

showing how organizations use their scorecards to align key management
processes and systems to the strategy. A strategic map of BSC is demonstrated
as a framework for organising strategic objectives into four perspectives.
Financial perspective deals with growth, revenue, productivity, profitability,
and risk viewed from the shareholder’s perspective. Customer perspective
consists of value and differentiation having the items price, quality, time,
function, service, relations and brand. Internal Business Process Perspective
deals with innovation processes, customer management processes, operations
and logistic processes, regulatory and environmental processes. Learning and
growth perspective deal with strategic competencies, strategic technologies,
climate for action with the aim of organizational change, innovation, and
growth. The BSC integrates long range strategic plans with short term
measurable objectives. It deals with internal process capabilities, innovation,
employee improvement and breakthrough improvement in critical areas of
product, process, customer and market.

Davis (2000) investigated the effectiveness of implementation of

BSC in banking institutions. He has established that the implementation of BSC
has significantly improved the performance comparing other banks which did
not implement BSC. Malina (2001) tested the validity of the BSC as a causal
model of leading and lagging indicators of non-financial and financial
performance in a large international Fortune 500company. The study provides
partial support for the claim that the BSC model reflects cause and effect
relations underlying the business model. It is also found that the use of time
series data in the BSC model improves overall model fit dramatically.

Christesen (2008) compared the performance of industries using

BSC and those not using BSC performance measurement techniques. He used
Net Income, Return On Asset (ROA), ROCE, Descriptive statistics, Analysis of
 69

Co-variance (ANCOVA) and Multivariate Analysis of Co-variance

(MANCOVA) as effective measures for comparing performance of two
categories of industries. It is found that companies using BSC have better
performance than those companies not using BSC.

2.5 BPR AND ORGANIZATIONAL CHANGE

BPR carries within itself the need for considerable change in

organizations to infuse vitality. Though Hammer & Champy (1993) suggested
BPR as radical process improvement, Vakola (1999) proved that the incremental
approach to BPR was not found to be a barrier to the change process and that
organizational and human issues have a major impact on the reengineering
effort. This study further establishes that:

1. Some of the methods of BPR are common to every project but some other
factors differ from project to project according to their context,
2. A successful business process re-engineering initiative in a company must
be characterized by flat structures, networked communications,
multidisciplinary teams, effective use of IT, management support, employee
empowerment and involvement in decision making,
3. A successful BPR initiative requires the support and involvement of both
management and employees.

A research study by Ricard (2000) on the integration of BPR and

organization development brings out the role of organizational leadership and
its ability to effect radical change by effectively using power to create a shared
vision and to change attitudes and perceptions. Murphy (2002) investigated the
relationship between BPR outcomes and employee perceptions in leadership
viz. transactional and combinational leadership styles. It was found that there is
statistically significant relationship between the perceived leadership styles of
 70

program leaders leading business process in reengineered organizations and

employee perception of employee satisfaction, employee effort, and employee
effectiveness and also on organizational effectiveness. Teng et al. (1996)
pointed out the following elements of organizational change: Organizational
impetus for BPR, Initiating process change, Selecting change enablers,
Managing change implementation, and Directions of organizational change. It
is found that risk of failure is greater if it proceeds without appropriate plans of
organizational change. There is a shift in BPR implementation from ‘one-shot’
redesign effort to on-going ‘process management orientation’ which emphasizes
the critical importance of human and organizational factors.

Porras & Robertson (1992) outline four types of organizational

change, as given in Table 2.4, based on category – planned or unplanned and
order – first or second.

Table 2.4 Types of organizational change

Change Category
Order of Change
Planned Unplanned
First Developmental Evolutionary
Second Transformational Revolutionary

First-order change which is linear and continuous in nature involves

alterations in system characteristics without any shift in either fundamental
assumption about key organizational cause-and-effect relationships or in the
basic paradigm used by the system to guide its functioning. Second-order
change is a multi-dimensional, multi-level, qualitative, discontinuous and
radical organizational change involving a paradigm shift.

De Waal et al. (2014) developed a Conceptual Framework for

Guiding Business Transformation and organizational change in innovative ICT
 71

projects. The first phase involves developing commitment to investing in the

ICT project and initiation of organizational change, second phase is
Implementation of new ICT processes and organizational change, third phase is
ICT payoff and institutionalization of organizational change.

To Fernandez & Rainey (2006) the major factors responsible for

successful organizational change in public sector are:
1. Ensure the need for change,
2. Provide a plan or course of action for implementing change,
3. Build internal support for change and overcome resistance,
4. Ensure top management support and commitment,
5. Build external support,
6. Provide resources,
7. Institutionalize change, and
8. Pursue comprehensive change.

They suggested that researchers should analyse the interactive effects

of such factors using research design and methods that treat the possibility of a
contingency approach to implementing organizational change seriously.

2.5.1 READINESS FOR CHANGE

Readiness to change has been a favourite topic of research.

Implementation of BPR hinges greatly on the employees: for they should accept
and cooperate with change effort. ‘Readiness refers to the social, technological,
or systematic ability of a group or organization to change or try new things’
(Beer & Walton 1987). Hanpachem (1997) defines readiness for change as:
“the extent to which individuals are mentally, psychologically,
or physically ready, prepared, or primed to participate in
organizational development activities.”
 72

Effectively managing change is the most critical factor for the

success of any change effort, particularly BPR. The prerequisites for the success
of BPR according to Jackson (1997) are: Senior Management commitment,
Clear vision, Strong visible leadership, and Good two-way communication.
Employee’s relationship with boss, commitment to the company, relationship
with co-workers, and such perceptions of employee’s work related load and
power are related to their readiness for change. In other words, the more power
or the higher work related ‘Margin in Life’, the more the employee is open and
ready for the changes that he or she may be asked or expected to make at work
(Madsen et al. 2006). Holt (2002) developed a scale for the measurement of
readiness for change and identified the readiness factors as; Personal
Confidence, Need for change, Personally beneficial, Organizationally
beneficial, Management support, Personal Confidence, and Need for change.
According to Paper & Chang (2005), top management should take initiative and,
people involved in change must be rewarded for taking calculated risks. The
vision must account for the environment, methodology, people and technology.

Abdolvand et al. (2008) describe the success and failure factors of

BPR implementation. The readiness indicators are determined based on five
Critical Success Factors (CSF) and a failure factor. The addressed factors and
sub factors are aggregated and categorized by authors in a hierarchical list as
given in figure 2.1.
 73

Figure 2.1 The critical Success and Failure factors of BPR

Source: Abdolvand et al. (2008) figure 1, Page: 499

Thus the BPR Success Factors are: Egalitarian leadership,

Collaborative working environment, Top management commitment and
sponsorship, Change in management systems, and Use of Information
Technology. Resistance to change is the failure factor.
 74

Reviewing various literature related to BPR implementation, Habib

(2013) identified the following as the failure factors; Management
heterogeneity; Vague methodology; Cross-functional teams creating problem;
Employee commitment and job security; Focus on short-term objectives; Lack
of basic concept, proper training, resources, leadership; Communication
problem; Resistance to change; Improper organizational structure; and
Organizational culture.

As BPR is a radical change rather than incremental change,

'resistance to change' has been identified as a major barrier to the success of
BPR (Corrigan 1996). Corrigan through his interview identifies one common
situation in most organizations adopting BPR that the employees perceive BPR
as a threat to their jobs, either directly to their existence or a threat to the quality
and content of their jobs, or as obstructing promotion. Grey & Mitev (1995) is
of the opinion that resistance of employees to change is mainly due to “fear” or
“misunderstanding” but not because of any fundamental conflict of interest.

Cinite (2006) developed a conceptual framework that would link

organizational members' attitudes towards transformational change,
organizational context and the Perceived Organizational Readiness to Change
(PORC) in Public Sector. The study was conducted in five public sector
organizations in Canada. The major readiness factors identified were:
1. Commitment of senior management to the change,
2. Competence of change agents, and
3. Support of immediate managers during the change.

The un-readiness factors identified are:

1. Poor communication of change,
2. Adverse impact of the change on work, and
3. Lack of employee involvement in the change process.
 75

2.6 SUCCESS OF BPR IMPLEMENTATION

Success rate of BPR attempts depends upon many factors.

Kondareddy (1998) found that, out of the 70 studied, 68 companies were
successful in BPR implementation. On analysing the benefits of BPR, all the
companies showed improvements in sales per employee, increase in revenue
and decrease in number of employee and hence better financial performance and
increased profitability. Contrarily, Murphy (2002) reported that 50-70 per cent
of organizations that undertook reengineering effort could not attain their
intended objectives. Some failure is due to lack of proper methodology
(Manganelli & Klein 1994).

2.6.1 How to Ensure Success in BPR Project

Stanton et al. (1993) stressed the importance of involvement of

everyone in the implementation of BPR. Three critical factors of the success of
BPR implementation identified are: Involvement of stakeholders, breaking
away the reengineering activities from the organizational mainstream, and
exhibiting strong and committed leadership.

The main factors responsible for the success of BPR projects as per
Lecouvie’s (1999) study are: Culture, Leadership, Team Dynamics,
Consultant’s role, and Nature and scope of change. It is found that realization
of planned objectives is dependent upon strong commitment from all levels in
the organization, from senior executives to the lowest level employees. It is also
found that team dynamics is the critical dimension of change and is a function
of commitment, leadership and culture. The role and influence of the consultant
and participation of employees are also crucial and technology has to be
managed as the ‘enabler’ of change.
 76

According to Prosci (2002), there are seven critical success factors

for BPR projects: obtaining top management sponsorship, aligning of BPR
effort with overall corporate strategy, choosing a strong and diverse team,
building a business case, using proven methodologies, managing change as
change is inherently threatening, and showing results quickly. In this study, 70
per cent of the participants were able to produce improvements within six
months. The CSF found through case study conducted by Quesada & Gazo
(2007) in a furniture industry was related to customer service, manufacturing
management, quality and price of the products. The key internal business
processes identified for the companies in this study were customer engagement,
product operations and SCM. To Liu & Seddon (2009) the critical success
factors for the implementation of enterprise systems are: Top management
support, achieving functional fit, changing the organization, effective project
management and other factors such as consultant selection and IT infrastructure.

Major success factors in the implementation of Strategic Information

system in Indian PSUs are: organizational culture, high turnover of
professionals, management involvement, collaboration, system standards,
resources implementation, resource availability, market competition,
organizational bureaucracy and organizational autocracy (Rishi 2008).

On examining failures of BPR implementation Burris & Howard

(2010) suggested Business Process Transformation Framework (BPTF) that
incorporates best practices and utilizes a proven methodology for development.
The specialty of BPTF methodology is that it is an Integrated Continuous
Improvement Methodology (ICIM) for assessing process, automation, culture,
organization, and metrics.

Ozcelik (2010) investigated the effects of BPR projects on firm

performance both during and after the implementation periods by considering a
 77

variety of measures, including labour productivity, return on assets, and return

on equity and found that while overall performance of firms remains unaffected
during the implementation of the BPR projects, it increases significantly after
the implementation period. Al-Hashdi (2002) conducted a study on the impacts
of IT and Organizational Customs and Practices in BPR initiatives. To achieve
successful BPR initiatives, executive management are urged to provide a
compelling vision tied with a sound, well-described and feasible strategy to
drive the project. In the public sector organizations, change strategy should opt
for incremental change approaches.

As per the model developed by Liu & Seddon (2009), considering

the project critical factors, there are mainly three benefit drivers: functional fit,
overcoming organizational inertia, and delivering a working system. This can
be re-categorized into: top management support, achieving functional fit,
changing the organization, project management, and other factors.

In the study on application of BPR in UK by Tennant & Wu (2005),

the main barriers identified for the successful implementation of BPR were:
tactical short-term solution driven approaches, which inadequately considered
the people issues, and an over reliance on IT-based technology and the factors
of success include adopting a strategic approach. Also management needs to
motivate and involve employees as a key enabler by removing their fears about
the implementation of BPR. For the success of BPR, all the elements such as
organizational structure, empowerment, training, IT system, etc. should be
considered together and effective communication, coordination and
understanding are required. Olson (2005) found that the success rate of team-
based project is 96.7 per cent and all performance improvement was successful.
The critical success factors identified were (a) mission, (b) monitoring and
feedback, (c) top management support, (d) trouble shooting, and (e) technical
skill of project leader.
 78

A study by Smith (2003) to assess the success and failures of

Business Process Design (BPD) found that BPD is a common type of
organizational change and is used in combination with other types of change.
Only 23 per cent of process change efforts surveyed in this study attained
breakthrough or near-breakthrough success. The role of middle management at
the department, division, or business-unit level has crucial role for successful
change in the organization. Some of the factors identified for success of BPD
projects are strong sponsorship, strong project team, better communication, and
stakeholder management. Project planning and management is important.
Negative factors include breakdowns in leadership, existing culture along with
the absence of success factors mentioned above.

2.6.2 BPR Failures

Sarker & Lee (1999) reported the case of failure of implementation

in BPR of US Telecommunication Company, TELECO. The major factors
responsible for failures include lack of trust and coordination to design
inconsistencies, poor IT delivery, and management discontinuity. Some other
reasons are;

1. Expecting employees whose jobs were at risk in communicating

“openly”,
2. Biased vendor selection and unclear systems specifications in IT
sourcing,
3. Transitioning to the “new” organization with a “parking lot” strategy,
4. Transitioning while carrying out responsibilities of the “old”
organization,
5. Inconsistencies in the redesign,
6. Uncoordinated implementation of HR and IT strategies,
 79

7. Major systems not delivered on time by vendors or the in-house IS

department, and
8. Leadership discontinuity.

Paper et al. (2003) in a case study of a failed project found that the
main reasons for the failure in the of implementation of High Profile
Technology (HPT) and BPR include:
1. Ill designed BPR effort
2. Inappropriate planning by top management
3. Considering BPR as a competitive tool rather than a holistic tool to
transform the organization
4. Scant attempt to analyse existing processes
5. Failure of the management to obtain feedbacks and opinion about the
process path and legacy systems
6. The people being uncomfortable with High Profile Technology (HPT)
and BPR
7. Failure of communication channels within the organisation
8. Lack of streamlining the business processes, due to which only
automation was done leading to speeding up of the bad processes, and
9. Forcing HPT processes onto a highly customized business, rather than
automating the existing processes.

2.7 METHODOLOGY OF BPR IMPLEMENTATION

Rahimi (1996) developed a methodology for the effective

implementation of BPR in manufacturing companies. This methodology
consists of four stages having various steps. The Stages and its steps are given
in Table 2.5
 80

Table 2.5 Four Stage Methodology for Implementation of BPR

Stages Activity Steps

1. Secure Management Commitment
Stage 1 Preparation 2. Organize Reengineering Teams
3. Set Performance Goals
4. Identify Reengineering Opportunities
Stage 2 Modelling 1. Document the Existing Process
2. Create a Simulation Model
1. Waste Elimination (QFD)
2. Identify Runners/Repeaters/Strangers
3. Input/ Output Analysis
Stage 3 Redesign
4. BPR Processing Chart
5. Selecting IT Levers
6. Natural Grouping
7. Design & Simulate New Model
1. Construct System
2. Train Staff
Stage 4 Implementation
3. Pilot New Process
4. Refine & Transition
5. Continuous Improvement

Source: Rahimi (1996)

Van der Aalst & Van Hee (1996) proposed High-level Petri nets tool
for the modelling and analysis of business processes. This model is based on the
classical Petri net model of Carl Adam Petri extended with colour, time and
hierarchy. This approach identifies three consecutive phases: what, how, and by
whom. ‘What’ phase describe the primary objectives of a company or business
unit, next is how these objectives can be reached and in the “by whom” phase
the allocation of resources such as manpower, machines, etc. to these activities
is determined. Petri net model of a business process is a precise and
 81

unambiguous description of the behaviour of the modelled process as it is

developed from mathematical foundation. It is graphical in nature and is used to
visualise business processes in a natural manner and supports the
communication between people involved in a BPR project. Another benefit is
this can be used as a model of the “As-is” process which further can be used for
models of ‘To-be’ alternatives.

Parnaby’s (1991) five-stage methodology useful for redesigning a

manufacturing system is given below:
1. Assess Market Need- In the first stage, assess market need and setup
world class performance targets such as percentage reduction in; stock,
overhead staff, lead times, wasteful activity, numbers of specialist job
grade, improvements of quality levels, etc.
2. Products and Manufacturing Process Analysis- The current
manufacturing systems evaluated using tools as; input-output and
flowchart analysis, from-to analysis, and waste identification. The
runner, repeater, and stranger processes, process capabilities, changeover
times, and tooling statistics are determined.
3. Steady State Design- The system is designed for average volume rates
and product mix needed to meet market demand for a period of few years.
4. Dynamic Design- Steady state system design is then modified to allow
for change, variation, and maintenance requirements considering
flexibility in volume and product mix.
5. Integration and Control System Design Process- Kanban and period flow
are used for cellular materials flow. Suitable information technology,
JIT, and MRP are adopted in later stage.

Lee & Chuah (2001) proposed a ‘SUPER’ methodology that enables

a company to achieve significant improvements in the operations of the
company. The name SUPER methodology is derived from the five phases of:
 82

Select the process, Understand the process, Proceed with the process
measurement, Execute the process improvement, and Review the improved
process. SUPER is credited to give fruitful results when implemented by
following the 15 steps proposed. Diagramming techniques such as flowcharts,
decision trees, Warmer-Orr diagrams, state transition diagrams, fishbone
diagrams, hierarchy charts, dataflow diagrams and business activity maps have
been used to represent business processes (Morris & Brandon 1993).

Valiris & Glykas (2004), described Business analysis metrics for

Business Process Redesign. Agent Relationship Morphism Analysis (ARMA)
is a BPR methodology that applies to different analysis techniques from various
disciplines in different perspectives. ARMA has been developed combining
accounting BPR principles such as efficiency, effectiveness, cost, etc. with
organizational theoretic concepts such as roles, accountabilities, etc. and some
powerful modelling techniques from IS development. The methodology
consists of mainly five stages: establishing the scope and mode of BPR, business
modelling, business analysis, redesign, and continuous improvement.

Goksoy et al. (2012) proposed the methodology consisting of the

following steps:
1. Identify the necessity for change
2. Ensure top management’s commitment and support
3. Communicate the necessity for change with employees
4. Develop process objectives
5. Form a reengineering team
6. Determine the scope and scale of the project and develop a project
schedule
7. Designate the processes to be reengineered
8. Analysis and understanding of current processes
9. Design the new processes
 83

10. Take advantage of IT

11. Include collaborators such as suppliers and freight forwarders in the
reengineering initiative
12. Pilot the new processes
13. Train employees who have relevance with the redesigned processes
14. Implement the new processes, and
15. Monitor and improve the new processes constantly

Davenport (1990), Lucas (1991), Harvey (1994), Butler (1994) and

Lyons (1995) are some other methodologies proposed for BPR implementation.

2.8 IMPLEMENTATION OF BPR PROJECT

Cleland (1987), Lord (1993), Pellegrinelli & Bowman (1994)

recommended that organizational change should be implemented in a 'project
management approach'. Project management is the process of integrating
everything that needs to be done as the project evolves through its life cycle in
order to ensure that its objectives are achieved (Morris 1994). Project
management scheduling techniques of Program Evaluation and Review
Technique (PERT) and Critical Path Method (CPM) can be used in
implementation of BPR project. The central project management scheduling
techniques, PERT and CPM, evolved from a need for the systematic evaluation
of the relationship between activities and events (Morris 1994). Activities
related to BPR needs to be identified, time estimated, and scheduling should be
done in a most scientific but flexible way so as to avoid bottle neck in the
existing business activities.

Narasimhan & Jayram (1997) stressed the importance of applying

project management principles in the implementation of BPR. It should have:
assessment phase, Data Analysis phase, reengineering design phase, and
 84

implementation phase. The noteworthy points are: it should identify the core
processes, use data triangulation using multiple sources of data on customer
requirements, core processes and process flows, direct participation of
employees of the client from initiation to culmination of the project, and
inclusion of experienced employees in the BPR team.

Abbasi & Al-Mharmah (2000) conducted a study on Project

management practice by the public sector in a developing country. It was aimed
at exploring the PM tools and techniques used by the public sector in Jordan. A
survey was conducted for the major fifty industrial public firms in Jordan, and
statistically analysed to identify the use of PM tools and technique. They
concluded that PM has proven to be an efficient approach, which would help
developing countries in upgrading their management capabilities, and enable
them to efficiently complete projects and attain development goals.

Pareto's Principle ‘vital few and trivial many’ is very much

applicable in the case of BPR. Practical application of Pareto Principle is
detailed by Williams (2007) as: most troublesome 20 per cent of the problem
solve 80 per cent of it, and 20 per cent of the solutions are vital for 80 per cent
improvement and Organizational performance improvement will result from a
consistent focus on the 20 per cent most critical issues. According to Paper et
al. (2001) 20 per cent of causes create 80 per cent of the problems experienced.
Following the Pareto’s principle, the most important vital problems are
seriously attended for performance improvement.

2.9 CONCLUSION

Literature on BPR reviewed has been of the following categories:

BPR history and concepts, BPR and related technologies for performance
improvement, Implementation of BPR in various countries and various types of
 85

organizations, the benefits BPR implementation, success and failure of BPR

implementation and corresponding factors, various performance evaluation
techniques, PSUs and its importance, Performance of PSUs in India and Kerala,
BPR implementation methodologies, etc. As commented by Al-Mashari
(2001), the application of BPR and other process change management tools will
continue to grow and expand as there is always need to change, improve and
innovate.

Comprehensive literature review has brought in the various

performance measurement techniques; various factors of performance
improvements; cases and benefits of implementation of BPR in developed
country and developing country. The various BPR implementation
methodologies, organizational change, readiness to change, etc. have also been
thoroughly reviewed. However, the researcher could not find any study related
to the nature and depth of the one proposed here. Also no studies which evaluate
the possible performance improvement in factors of performance, before
implementing BPR was found. The proposed study intends to bridge this gap
in literature. It also aims at assessing need and scope of BPR in PSUs of Kerala,
and identifying the factors of performance improvements applicable to specify
industry or organization.
 86

CHAPTER 3

RESARCH METHODOLOGY

3.1 INTRODUCTION

Research studies are classified mainly on the basis of objective,

design, method of data gathering and nature of data gathered. On each one of
these bases Research may be classified as:
1. Based on objective: Pure, Applied, Strategic
2. Based on design: Descriptive, Exploratory, Causal
3. Based on the method of data gathering: Experimental, Observation,
Survey, Participatory, Action
4. Based on the nature of data gathered: Quantitative, Qualitative

The present study, being based on objective is an applied research.

Based on design it is of both exploratory and descriptive in nature. Exploratory
research is conducted with expectation that subsequent research will be required
to provide conclusive evidence (Zikmund 1997). Present study uses both
exploratory and descriptive methodologies in different phases of the study.

3.2 RESEARCH DESIGN

The present study intends to assess the need and scope of

implementing BPR in PSUs of Kerala. The universe for the study is the PSUs
in Kerala. The data published by Bureau of Public Enterprises, Government of
Kerala, is a scientifically sound source for approaching the universe of enquiry.
The Bureau makes publication of annual data about the functioning of such
enterprises. The Annual Review of State Level Public Enterprises (Bureau of
Public Enterprises 2012) reviews the performance of all the 89 units in active
 87

business. Based on the field and type of activity, these 89 SPSUs are grouped
into 13 sectors which are detailed in Table 3.1.

Table 3.1 Sector wise Classification of SPSUs

Sector No. Industries by Sector Number

1 Development & Infrastructure Agencies 19
2 Ceramics & Refractories 2
3 Chemical Industries 10
4 Electrical Industries 4
5 Electronics 3
6 Engineering & Manufacturing 9
7 Plantation /Agro & Livestock Based Units 12
8 Textiles 2
9 Traditional Industries 7
10 Trading Units 3
11 Welfare Agencies 10
12 Public Utilities 6
13 Others 2
Total 89

Source: Bureau of Public Enterprises (2012)

The present study is limited to 41 PSUs under the administrative

control of Department of Industries, GOK, which forms a sub-group of the
above 89 SPSUs. These PSUs were taken for the present study because these
are most suitable for the study as per expert opinion, these have similarities in
the functioning, and revival attempt has been done on these PSUs by department
of industries GOK. The others units are of different nature, and are mostly
service industries. The sector wise distribution of these companies is given in
Table A 1.1 of Appendix 1.
 88

The population for the study thus consists of the 41 SPSUs. Two
CPSUs working in Kerala which are similar to that of selected SPSUs are also
included in the study purely for comparison purposes. The companies selected
are a health care company Hindustan Latex Limited (HLL) and a machine tools
production company Hindustan Machine Tools (HMT).

3.2.1 STAGES OF THE STUDY

The study was conducted in four stages / phases using methodologies

appropriate to each stage.

3.2.2 Stage 1

Preliminary explorative study was conducted on a few sample units

about the current performance. For this study, five SPSUs were selected. The
five organizations selected are:
1. Keltron Counters Ltd., Trivandrum
2. Keltron Component Complex Ltd., Karakulam
3. The Kerala Ceramics Ltd., Kundara
4. Transformers and Electricals Kerala Ltd., Angamali
5. Kerala Automobiles Ltd., Trivandrum

Four of them were from the population of 41 PSUs, which were

under the administrative control of the Department of Industries, GOK. Another
one is a closed unit that was under the administrative control of the Department
of Industries, GOK, ‘Keltron Counters Ltd.’. The unit was closed down in 2004,
and the employees were provided VRS. It was closed down after two revival
attempts under the supervision of BIFR. This was included for the preliminary
study because the researcher had 24 years of experience in that company and
the researcher believe that it could have been revived if managerial technique
like BPR were scientifically implemented.
 89

These units were selected on the bases of suitability, accessibility and

feasibility. Suitability of these organizations for preliminary study is as given
below. Electronic industry in Kerala is mainly under state public sector with the
brand name ‘Keltron’. Initially it was treated as a model public sector unit and
many other States copied it in starting Electronic Industry of their own. There
were eight Keltron Units during 2001-02. Subsequently, on account of their
inability to work profitably, most units were closed down, leaving only three to
survive. Two of these units of Keltron are selected as good sample units for the
first stage of the study. There are only two units in ceramic sector. ‘Kerala
Ceramics’ was incurring loss in the 10 out of 14 years. There are four companies
in electrical sector. The major company in this sector is ‘Transformers and
Electricals Kerala Ltd.’ which was working profitably in the first 13 of the last
14 years. This company is also suitable to be included in the sample for
preliminary study. From the ‘Engineering and Manufacturing’ sector ‘Kerala
Automobiles Ltd.’ has been making heavy loss for the last few years and was
referred to BIFR for revival. This company is worth studying due to the heavy
loss it is making.

3.2.3 Stage 2

In Stage 2, after identifying the variables affecting the performance

of the organizations; a detailed study of the financial performance of SPSUs for
the past 14 years was done. It aimed at assessing the financial performance,
comparison with industry average, and assessing their present financial status.
This was done to assess the suitability of BPR for performance improvement in
PSUs of Kerala. Various financial tools, mentioned in the following sections
were used.

In the second stage a detailed analysis of the financial performance

of all the 41 PSUs in nine sectors was done. The various sectors are: Chemical,
 90

Electrical Industries, Electronics, Engineering & Manufacturing, Textiles,

Ceramics & Refractories, Welfare Agencies, Traditional Industries and
Development & Infrastructure Agencies.

3.2.4 Stage 3

The third phase of the study was more ambitious as it proceeded to

make an estimation of the level of possible performance improvements in 12
identified variables of performance improvements. In this stage, study was also
conducted among the executives in the SPSUs. For this purpose, a sample of six
SPSUs was selected on the basis of suitability, accessibility and feasibility; as
in the case of first stage. The companies selected for the study are given below:
1. Keltron Component Complex Ltd.
2. Keltron Electro Ceramics Ltd.
3. Kerala State Electronics Development Corporation Ltd.
4. Kerala Automobiles Ltd.
5. Kerala Ceramics Ltd.
6. United Electrical Industries Ltd.

Background and suitability of KELTRON was already given. Its

present appalling condition compelled the researcher to bring the three
KELTRON units under the scope of the present study. Again one unit each from
manufacturing sector in Automobiles, Ceramics and Electrical segments were
selected for assessing the extent of possible performance improvement. These
units were selected as they were poor performers and seemed to require drastic
revival measures. Two CPSUs - HMT, and HLL were selected to see whether
the possible performance improvement at the SPSUs match with that of the
CPSUs in Kerala. All the available executives of the eight companies were
involved in the study. Primary data were collected using structured
questionnaire having 83 items in 12 domains.
 91

3.2.5 Stage 4

In the fourth phase, assessment of the readiness to change among

employees of the SPSUs was made to study whether the employees will support
implementation of BPR technique for drastic performance improvement. A
comparison of level of readiness to change between executives and workers,
between companies which are making profit and those incurring loss, and
between employees of SPSUs & CPSUs were also done.

The companies selected in the fourth stage were the same as that of
the third stage but the study is conducted among the executives and workers in
these companies. All the available executives of these companies were included
in the study and on a random basis workers were selected. There were 182
employees from six SPSUs and 68 employees from two CPSUs. The number of
executives of SPSUs was 35 and workers 147.

3.3 DATA COLLECTION

The present study made use of both primary and secondary data
suitable for each stage. The study used both quantitative and qualitative data.
The details are described below.

3.3.1 Tools and techniques of Data Collection

Tools and techniques used for various stages were different and care
was taken to identify the most suitable one for each stage. Tools and techniques
used in phase 1 is described below.

In the initial stage information regarding the current and past

performances was collected. Primary data was collected through discussions
with employees at various levels, and interviewing the executives of various
departments using unstructured and semi-structured interview schedules.
 92

Secondary data were collected by verifying company’s annual reports, company

records, study reports of various government agencies and industrial engineers,
etc. Data regarding the performance of the organisation were collected from
company’s annual reports, monthly and yearly production plan, deviation from
planned production, reason for shortage, realized production figures against
installed capacity, etc. Data were also collected from employees at various
levels using unstructured interview schedule. Some data were collected through
observation. Machinery details, technology used, etc. were also studied to assess
whether production were affected by obsolete machinery or use of obsolete
technology. Achieved production is compared with planned production and
installed production capacity. Performance report of some committee appointed
by government is also studied. During this stage of exploratory study, the
researcher could identify some major domains / factors of performance
improvements. This study enabled the researcher to draw vital points that could
be extended to the present population where scope for implementation of BPR
for drastic performance improvements is explored.

In the second phase, a detailed descriptive study was conducted on

selected PSUs of Kerala to understand the financial performance of the
organizations. This is intended to understand whether the performance is poor
or better and whether drastic performance improvement is required or not. In
this phase, data mainly consisted of company’s annual reports for the last 14
years. The data for the financial year from 2001-02 to 2014-15 published in
Review of Public Enterprises published by Bureau of Public Enterprises,
Government of Kerala were collected. Data were analyzed using various
financial performance analysis tools such as: Net Profit, NPR, ROCE and
Altman’s Z-Score model. Results were compared with Industry average. The
results of this analysis showed the position of PSUs in Kerala and whether they
require drastic performance improvement.
 93

The third stage was assessing the level of possible performance

improvements in organizations as per the opinion of executive of the company.
In this state the data were collected by administering a questionnaire.

The factors/domains of performance improvements were identified

by various methods. First the factors provided in the definition of BPR mainly,
Cost, Quality, Time/Speed, and Delivery were identified as main factors. Again
factors of performance given in advanced performance measurements
techniques like BSC such as Financial perspective, Customer perspective,
Internal business process perspective and Learning and growth perspective were
considered. Some other factors such as Political, Trade union, Information
Technology, etc.; which affect the performance are related to business
environment. These, along with other factors like Product Obsolescence,
Technology Obsolescence, etc. were identified, during preliminary explorative
study, as major performance factors affecting the performance of PSUs. These
were confirmed through interviews with employees at various levels of the
organization, observation by the researcher, and consulting various studies on
revival of PSUs by experts appointed by government. Finally, 12 major factors
of performance improvement in PSUs, as given in Table 1.3, were identified. A
questionnaire having 83 items related to these factors was developed
(Questionnaire A 3.1 of Appendix 3).

For the quantification of opinions, the format provided in Table 3.2

was used. For each domain the response could be one of the five options with a
pre decided score. The score however stands in a linear fashion to represent a
range of values. The values 5, 4, 3, 2, and 1 are used in ordinal sense to represent
‘Very High’, ‘High’, ‘Moderate’, ‘Mild’ and ‘Less’ possibilities. These values
represent a range of 20 per cent of possible performance improvement of equal
intervals given in the last column. Range is represented by their mid values.
Naturally, 1 stands for 10 per cent (mid value of 0-20), 2 for 30 per cent, and 3
 94

for 50 per cent of improvements and so on. The percentage possible

performance improvements corresponding to fractional values obtained in
average can also be calculated in this way.

Table 3.2 Options of Questionnaire on Possible Performance Improvement

Possible Improvement
Options Score
(%)
Very High Possibility 5 80 - 100
High Possibility 4 60 - 80
Moderate Possibility 3 40– 60
Mild Possibility 2 20 - 40
Less Possibility 1 0 - 20

A Pilot study using this questionnaire was conducted. Expert opinion

was sought at this step and necessary modifications were also made. The
questionnaire was then tested for reliability using Cronbach's alpha - a
coefficient of reliability. It is given as:

Here N is the number of items and r-bar is the average inter-item correlation
among the items. One can see from this formula that if the number of items is
increased Cronbach's alpha also increases. Additionally, if the average inter-
item correlation is low, alpha will be low. As the average inter-item correlation
increases, Cronbach's alpha as well increases. A reliability coefficient of .80 or
higher is considered ‘acceptable’ in most Social Science applications. The
questionnaire was tested for Cronbach's alpha using SPSS and obtained value
of 0.975 for 83 items (questions). This value of Cronbach’s Alpha shows that
the questionnaire has high reliability.
 95

Data regarding the Possible Performance Improvements (PPI) in the

organizations were collected from all the available executives of the six selected
SPSUs and two CPSUs through Questionnaires. The results of this study bring
out the level of possible performance improvements in each of the performance
factors. After establishing the PPI in PSUs of Kerala, assessment of the
“readiness for change” among the employees in these organizations were done.
For assessing readiness to change among workers and executives of the
organization, information was collected by using a suitable structured validated
questionnaire. Readiness factors applicable to the PSUs in Kerala were
identified by way of reviewing literature on organizational change and readiness
to change. The five critical success factors (with 19 sub factors) and the
resistance factors (with 5 sub factors) given by Abdolvand et al. (2008) have
been found to be extremely relevant and useful in the present context of research
for measuring the readiness of employees of PUSs in Kerala. The questionnaire
was translated to the vernacular - Malayalam language - for a better
understanding on the part of the worker respondents. On account of the
difference in the cultural context of the original and present studies, a pilot study
was conducted. The test of reliability using Cronbach’s Alpha revealed a score
of 0.88, denoting high reliability for the tool. In the original study by Abdolvand
et al. (2008) based on which the present questionnaire is developed the
Cronbach’s Alpha was 0.76. The factors of Readiness to change/ resistance to
change along with different items under each factor are given in Table 3.3.

Likert type ordinal scale was used in measuring the level of readiness
of employees under five readiness factors and a resistance factor. With regard
to the resistance factors the options measure their worry towards change. The
options given to particular questions are: (a) always, (b) more, (c) moderately,
(d) less and (e) never with values 5, 4, 3, 2 and 1 respectively. For analysis
purpose, an assumption of equal interval between choices was made.
Questionnaire used is given in Table A 4.1 in Appendix 4.
 96

Table 3.3 BPR Success/Failure Factors

No Factors Items
I. Readiness Factors
Shared vision/information
Open communication
1 Egalitarian leadership
Confidence & trust in subordinates
Constructive use of subordinates' idea
Friendly interactions
Confidence and Trust
Collaborative working
2 Team work performance
environment
Corporative Environment
Recognition among employees
Sufficient knowledge about BPR project
Top management Realistic expectation of BPR result
3
commitment Frequent communication with BPR team and
users
New reward system
Change in Performance measurement
4
management systems Employee Empowerment
Timely training and education
The role of IT
Use of Information
5 Use of up to date communication technology
Technology
Adoption of IT
II. Resistance Factor
Middle Management fear of losing authority
Employees fear of losing job
1 Resistance to change Skepticism about project result
Feeling uncomfortable with new working
environment
Source: Abdolvand et al. (2008)

Readiness levels of each organization is assessed and compared by

collecting data from executives and workers. Comparison is also made on
readiness to change between better performing organizations and poor
performing organizations. Two CPSUs in Kerala were selected for comparing
the readiness with SPSUs. Various statistical tools are used for assessing the
 97

significance of difference in readiness to change. The findings in the order as

narrated above are presented in chapter 4.

The results of this study enable to understand whether the employees

are favourable to change so that implementation of BPR for drastic performance
improvement can be tried. For the successful implementation of BPR, support
of employees of all levels is required. Fear, if any, can be eliminated by making
them understand the benefits of implementation of BPR.

3.4 ANALYSIS OF DATA

Various tools were used for the analysis at different stages of the
research. Appropriate tools; statistical, financial and otherwise and various other
suitable techniques were used for analysis of data in this study.

3.4.1 Stage 1

In this stage of analysis, the descriptive statistics such as mean, standard

deviation etc. were used. Monthly production was compared with planned
production and installed capacity. The maximum monthly production and sales
achieved for the last few years were studied from past records. Effectiveness of
the implementation of various proposals, drawbacks if any, and reasons were
also studied. The preliminary study was conducted for establishing the need for
further study for the implementation BPR in those organizations.

3.4.2 Stage 2

In the second stage, financial performance of all the 41 SPSUs was

analysed, using various financial and statistical tools. Profit and Loss Account
of individual companies provide an unmistakable indicator of the performance
of any company. For instance, the Profit & Loss Account of the Kerala State
 98

Electronics Development Corporation for the period 2009-10 to 2011-12 given

in Bureau of Public Enterprises (2013) is reproduced in Table A 2.1.

Financial Performance Analysis

Financial performances of 41 SPSUs under study were analysed

using Net Profit, Net Profit Ratio (per cent) (NPR), Return On Capital
Employed (ROCE) and Altmam’s Z-Score model.

The corresponding equations are given below.

Net Profit
Net Profit Ratio (per cent) = ------------------ x 100
Net Sales

Net profit
R O C E (per cent) = ---------------------- x 100
Capital Employed

Z-Score of Altman’s ZETA®Credit Risk Model for the

manufacturing firm is given by the formula is:
Z’ = 0.717(X1) + 0.847(X2) + 3.107(X3) + 0.420(X4) + 0.998(X5)
Where, X1 = Working Capital/Total Assets,
X2 = Retained Earnings/ Total Assets,
X3 = Earnings Before Interest and Taxes/ Total Assets,
X4 = Book Value Equity/Book Value of Total Liabilities,
X5 = Sales/ Total Assets, and
Z = overall index.

The value of Z is an indication of the financial health of the

organization. A cut off value of Z=2.67 is fixed for testing the firm, based on
data from one financial statement prior to bankruptcy or default on outstanding
 99

bonds. The expected accuracy is 94 per cent. More conservative approach is to

use a cut off score of 1.81 which give an accuracy rate of 84 per cent.

The level of financial distress is predicted as given below:

Bankrupt group mean=0.15; and non-bankrupt group mean=4.14
Z’ < 1.23 - Zone I or “Distress” Zone (no errors in bankruptcy classification)
Z’ > 2.9 - Zone II or “Safe” Zone (no errors in non-bankruptcy
classification)
1.23 < Z’< 2.9 - “Grey” Zone (Z value 1.23 to 2.9)

Altmam’s Z-Score model is used for detecting whether the

companies are in financial distress or not. A detail of these analyses is given in
subsequent sections. 41 PSUs under study belongs to nine industrial sectors.
Performance of each Sectors as well as comparison of performance of various
sectors were also done. Various statistical tools were also used for comparison.

3.4.3 Stage 3

In the third stage of the study the level of possible performance

improvements in PSUs were analysed using primary data collected using a
structured questionnaire as mentioned earlier.

Analysis of Possible Performance Improvements

Percentage of possible performance improvements (PPI) in each of

the 12 factors, as per the opinion of executives of the organization is collected
and analysed. Few hypotheses were tested in this stage to get more clarity in
PPI, as it is most important for deciding whether to go for BPR or not. To
understand the level of PPI in PSUs one sample t-test were conducted. To
compare the PPI between SPSUs and CPSUs, between Profit Making PSUs and
 100

Loss Incurring PSUs, independent sample t-tests were conducted. The following
hypothesis were tested in this stage.
Hypothesis 1: There is scope for over 50 per cent Possible Performance
Improvement (PPI), for each domain demanding improvement in the PSUs of
Kerala.
H1a: PPI in PSUs is greater than 50 per cent.

Hypothesis 2: The PPIs of SPSUs is greater than that of CPSUs in Kerala.

H2a: PPI in SPSUs is greater than PPI in CPSUs

Hypothesis 3: The PPI of loss incurring PSUs are more than profit making
PSUs.
H3a: PPI in Loss Incurring PSUs is greater than Profit Making PSUs.

The data so collected was analysed using Statistical Package for

Social Science (SPSS) Version 21.

3.4.4 Stage 4

In this stage the level of readiness to change of employees is

assessed. Comparison is also made between executives and workers, loss
incurring companies and profit making companies, SPSUs and CPSUs.

Analysis of the Readiness to Change of Employees

In this stage the readiness to change of employees of PSUs were

assessed by collecting primary data using a structured questionnaire. A
comparative analysis of Readiness to change between executive and workers
were made. Also the level of readiness to change between of employees of
SPSUs and CPSUs, readiness to change between employees of profit making
and loss incurring PSUs were done. Independent sample t-tests were used for
comparing the difference in readiness to change between different categories.
 101

The following hypotheses, related to readiness to change were tested

in this stage.
Hypothesis 4: Executives have higher readiness to change than that of workers
H40: Readiness to change of Executives is equal to workers

Hypothesis 5: Readiness to Change of employees of SPSUs is greater than that

of CPSUs.
H50: Readiness to change of employees of SPSUs is equal to Readiness to
change of employees of CPSUs

Hypothesis 6: Readiness to change of employees in PSUs incurring loss is

greater than that of employees of PSUs making profit
H60: Readiness to change of employees of PSUs Incurring Loss is equal to
Readiness to change of employees of PSUs Making Profit

Data were collected and analysed using appropriate tools as

described above and details are given in Chapter 4.
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CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

This research study was mainly intended to find out the need and
scope of implementation of BPR in State PSUs of Kerala. This study, as already
made clear, attempts to:
a) Examine the Current performance of PSUs in Kerala,
b) Analyse the Financial performance of PSUS for the last 14 years,
c) Find out the level of Possible Performance Improvements (PPI) in PSUs
d) Explore the readiness to change of the employees to adopt BPR as an
improvement measure.

Methodology chapter mentioned that 41 PSUs under the

administrative control of Department of Industries, Govt. of Kerala were
identified and their data regarding performance were collated. Study was
conducted in four stages.

First, a preliminary study was conducted in five typical PSUs to

understand the current state of the organizations and the problems faced by
them. In the second stage, financial performance of the whole 41 PSUs under
study were analyzed using Net Profit, NPR, ROCE and Altman’s Score. In the
third stage, PPI in PSUs were assessed selecting few organizations form the
population. A set of 83 items on 12 performance factors were administered
among executives at various levels. This study was also conducted in two
Central PSUs in Kerala for comparing it with that of SPSUs. In the next stage,
data regarding the readiness for change of employees were collected from these
companies using another structured questionnaire (Abdolvand et al. 2008).
 103

Analysis of the data is done in various stages consisting of:

1. Preliminary Study on the current Performance of PSUs in Kerala
2. Financial Performance analysis of PSUs for the last 14 years
3. Assessment of PPIs in PSUs
4 Readiness for change among employees at various levels for BPR

4.1 PRELIMINARY STUDY ON THE CURRENT

PERFORMANCE OF PSUS IN KERALA

During the problem identification phase, it was found that performance

of most of the SPSUs are poor and some of them were closed down due to
inability to revive even after many revival attempts. The present study assessed
the need and scope of implementing BPR for the revival of PSUs especially Sick
units. Study was conducted in four phases as detailed in methodology chapter.
In the first phase of the study, a preliminary explorative study was conducted on
few typical PSUs selected by judgment sampling based on suitability. Data was
collected through: discussions with employees at various levels, verification of
company documents, observation by the researcher, analyzing study reports
made by expert committee appointed by government, etc. The aim of this study
was to assess the present state of the organizations, present performance of the
organizations, the critical factors of performance, drawbacks of the performance
if any, etc. This study would help to identify the major factors of PPI and how
it affects the performance. This information is required for further detailed study
in phase 3 of this research study.

The following are the SPSUs involved:

1. Keltron Counters Ltd. (KCL), Trivandrum
2. The Kerala Ceramics Ltd. (TKCL), Kundara
3. Transformers and Electricals Kerala Ltd. (TELK), Angamali
4. Keltron Component Complex Ltd. (KCCL), Karakulam
 104

5. Kerala Automobiles Ltd. (KAL), Trivandrum

4.1.1 Keltron Counters Ltd. (KCL), Trivandrum

KCL was a manufacturing organization making various mechanical,

electrical, electronic products and defence equipment for various customers
including Defence Heavy Vehicle Factory, Indian Navy, Multi-national
companies like BHEL, Indian Telephone Industries, and many other Private
Parties. KCL was closed down in 2004 after giving VRS to all its employees.
Study on KCL was conducted to analyse the reasons for closure of the company
and why it could not be revived after two revival attempt sunder direction of
BIFR and the supervision of operating agency, IDBI. The study was conducted
on KCL by visiting old executives at various levels and trade union leaders of
various Trade Unions; collecting various documents like study reports,
agreement made between management and Trade unions, BIFR proceedings,
project proposals given to BIFR, their review reports, etc.

KCL was incorporated as a private limited company, ‘Metropolitan

Instruments Limited’ in 1964 with an authorized capital of Rs. 30 Lakhs. It had
a tie up with M/s Rovan Inc. USA for the manufacture of electromagnetic
counters (PO meters). The decline of the order for PO meters triggered a major
problem. Subsequently the company was taken over by KSECD in 1973 and
was working in the name ‘Keltron Counters Ltd.’ Initially KCL was a profit
making venture but soon joined the group of loss making PSUs. Since 1973,
KCL made continuous loss for several years and accumulated loss of Rs. 393.90
lakhs during 1991-92, which was more than ten times its share capital. This
made the company sick and it was referred to BIFR in 1992.

KCL submitted a rehabilitation proposal including diversification of

its products. Even after implementing the proposal, the company could not be
 105

revived. KCL submitted a revised proposal in 1996. All the stake holders
cooperated to turn it round the corner. None of these could make the company
profitable as the burden of accumulated loss was very high. As the operating
loss was increasing, the company had no options left; and it was closed down
giving VRS to all the remaining employees in October 2004. Going through the
first and second revival packages and their implementation, it is seen that the
revival project was poorly prepared and implemented. There for it is argued that
had the company implemented BPR, drastic performance improvements could
have been achieved.

The major problems identified (KSEDC 1995) by the Industrial

Engineering Department of KSEDC the holding company of are:
1. An inappropriate and undisciplined work culture
2. Failure in implementing systems and procedures for proper
accountability of the ‘4 Ms’ i.e. Material, Men, Machines and Money
3. Failure in proper utilisation of manpower
4. Failure in inculcating a feeling of responsibility in the work force

Some of the major suggestions and recommendations are:

1. Materials Requirement Planning II (MRP II) and critical planning ratio
approach to scheduling can be implemented,
2. Ensure strict control of shop floor activities,
3. Measure the plant utilization and labour efficiency,
4. Balance Production line,
5. Improve the performance of the unit and develop means to measure its
effectiveness,
6. Introduce Quality circle,
7. Introduce Total Productive Maintenance,
8. Computerisation of purchase procedure, and
9. Introduce a system for Management Information
 106

From the present study it is found that most of the recommendations

made by the study mentioned above had not been effectively implemented, and
that is why the company could not be revived even after several attempts. Some
of the other reasons identified for poor performance which lead to the closure
of the company are described below.

Man power utilization was very poor. Staff to Worker ratio was very
high. There were 12 employees, mostly technicians, working in four stores -
Raw Material store, Progress store, Component Store and Finished goods store.
The stores could have been merged into one or two and total ‘stores men’ could
have been reduced to half the strength. The strength of Draftsmen could have
been reduced from one to five if graphic software was introduced. These excess
technicians relieved from service departments could have been used in
production departments, thereby reducing the staff to worker ratio and
increasing the production capacity.

Computer and usage of IT is limited to Pay roll and Accounting.

Inventory was not computerized and hence preparation monthly production plan
depended mainly on manual stock list.

The company pursued no strict policy of grade promotions. Diploma

holders working as supervisors were promoted as engineers and workers were
promoted as supervisors on acquiring higher qualification through part-time
study irrespective of requirements in higher grade succumbing to the demands
of Trade Union. This type of promotion further increased staff to worker ratio
affecting production.

Death of the above organization on account of factors narrated above

shed light on the dearth of scientific management. If modern scientific methods
like BPR were implemented in KCL on time it could have been revived.
 107

4.1.2 The Kerala Ceramics Limited (TKCL)

TKCL was formed during 1963 by merging of two units: one setup
for mining & refining of china clay and another unit for the production of
porcelain wares. The authorized capital was Rs. 1400 lakhs and a paid up capital
of Rs. 1120 lakhs. The net worth of the company was continuously eroding.
Accumulated loss came to Rs. 5377.76 as on 31/03/2013. In the same year the
Centre for Management Development conducted a study on major causes of
poor performance, which are given below:
1. Limitation of plant capacity at 18000 MT/year
2. Obsolete Technology
3. Aged machinery /equipment
4. Longer cycle time of operations
5. Products of lower grade
6. Non availability of proper grit separation system
7. Non availability of raw material
8. High production costs due to labor oriented processes, lack of
automation, high use of chemicals and other inputs.

The study urged upgradation of technology to achieve improved

physical and optical properties of final products. With regard to production of
clay products, time tested and established process routes are suggested to
achieve the desired quality and quantity. The report observed that the Company
faces serious issues on almost all areas of operations/functions including
technology & production, research & development, quality assurance,
marketing, finance and management. The report suggested revival through
restructuring. It is also argued that restructuring to be effective fundamental and
drastic restructuring envisaged by BPR has to be tried.
 108

4.1.3 Transformers and Electricals Kerala Limited (TELK)

TELK is the largest Public Sector Electrical Company in Kerala. It

was established in 1963 as a joint venture undertaking by Government of Kerala,
Kerala State Industrial Development Corporation Ltd., and M/s Hitachi Ltd.,
Japan for the manufacture and selling of Heavy Electrical Equipment. With a
share capital of Rs. 1357 lakhs, TELK started commercial production in 1966.
The products of TELK include: Power Transformers up to 400 kV 315 MVA,
Shunt Reactors, Gas Circuit Breakers, Current Transformers up to 420 kV,
Potential Transformers up to 245 kV, etc.

Company was in continuous loss in 1990s and net worth became

negative and was referred to BIFR in the year 1995.Some of the problems faced
by TELK and solutions recommended are:
1. TELK was dependent on only M/s Hitachi for technology and from the
nineties onward M/s Hitachi had withdrawn from the scene. So far the
company was not in a position to make alternate arrangement of
technology. Technology has to be obtained from some leading Multi-
nationals in the field.
2. Requirement of modern machinery of manufacturing for processing,
3. Technology upgradation – TELK has to make major technology up
gradation and suitable additional infrastructure installations.
4. Discontinuing of certain products – Certain products has to be
discontinued as it is not profitable
5. Building up capacity for above 400 kV class equipment- In India the
requirement of 765 kV Transformers and High Voltage Direct Current
(HVDC) Transformers are coming up for which the company has no
technology at present
6. Old plant and machinery - Periodical replacing of old plant and
machinery is required.
 109

7. Need for manpower restructuring- TELK is a High-Tech company

manufacturing EHV electrical equipment with stringent specifications.
Hence, TELK require self-motivated, technically competent cadre to
maintain the quality level.
8. Bagging orders through Engineering Procurement and Construction
(EPC) – This will help in getting good orders required for TELK

BIFR declared TELK as sick and appointed IDBI as operating

agency. The company submitted a revival scheme to BIFR in October 1995,
which was withdrawn by it, at the instance of the State Government. Some of
the suggestions made for the revival of TELK were: Government sanction of
certain reliefs and concessions along with major fund support which has to be
treated as equity in the company, Company can use these funds to settle
liabilities under One Time Settlement (OTS) against accumulated loss, which
comes to Rs.5758 lakhs as on 31.3.2004. So many other proposals were made
for revival of TELK. By taking revival steps TELK came out of BIFR and is
running at profit since 2006-07.

4.1.4 Keltron Equipment Complex (KEC), Karakulam

Keltron Equipment Complex (KEC)is one of the main Units of

KSEDC. Detailed analysis of the performance of Keltron Equipment Complex,
is done using data collected from company records, interview and observation
methods. Month wise financial performance of KEC for six years is given in
Table 4.1 and figure 4.1.
 110

Table 4.1 Monthly Production of KEC from 2004-05 to 2009-10

Production (Rs. Lakhs)

Month 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
April 40.22 33.26 107.06 33.21 46.54 64.21
May 74.03 102.65 152.56 95.15 19.63 469.28
June 273.2 176.30 356.36 219.74 132.75 313.82
July 161.73 262.83 402.96 58.43 38.73 336.06
Aug 97.49 176.62 224.58 202.58 22.73 207.64
Sept 238.85 296.55 193.43 110.04 113.35 222.98
Oct. 176.66 116.14 254.24 159.53 132.21 260.86
Nov. 129.38 252.71 302.07 35.95 268.26 391.93
Dec. 231.66 414.28 245.21 194.80 309.43 554.89
Jan. 183.5 409.82 295.96 177.71 346.91 329.45
Feb. 181.87 291.48 313.44 217.32 548.92 292.22
March 471.31 580.19 531.74 356.15 1010.02 840.07
Total 2259.90 3112.83 3379.61 1860.61 2989.48 4283.41

Source: Company Records

Monthly Production of KEC from 2004-05 to 2009-10

(Rs. Lakhs )
4000
Monthly Production

2009-10 3500
2008-09 3000
2500
2007-08
2000
2006-07
1500
2005-06 1000
500
2004-05
0

Month

Figure 4.1 Monthly Production of KEC from 2004-05 to 2009-10

 111

It can be seen from the data table and chart that yearly production varies
drastically from month to month and year to year. In 2007-08 production was
very low and high during 2009-10, giving an increase of 130 per cent in two
years. It is seen that every year, production during the last month of financial
year is much higher than previous months. It is due to efforts taken for achieving
the yearly production target. It indicates that there is scope of improving
production if more efforts are taken.

Descriptive statistics of the monthly production is displayed in Table

4.2. Standard deviation of monthly production is very high and hence the
coefficient of variation ranges from 40 per cent to 185 per cent during the period
of 12 month’s production. This shows very inefficient production planning and
control indicating the need for a detailed study for identifying scope of BPR.

Table 4.2 Production Statistics of KEC

Producti Producti Producti Producti Producti Producti

on 04-05 on 05-06 on 06-07 on 07-08 on 08-09 on 09-10
Mean 188.33 259.40 281.63 318.04 249.12 356.95

Std. Deviation 112.55 154.32 114.71 591.39 288.77 197.45

Minimum 40.22 33.26 107.06 33.21 19.63 64.21

Maximum 471.31 580.19 531.74 2173.20 1010.02 840.07

Sum 2259.90 3112.83 3379.61 3816.49 2989.48 4283.41

Coefficient of 59.76 59.49 40.73 185.95 115.92 55.32

Variation %

4.1.5 Kerala Automobiles Ltd.(KAL)

KAL, an ISO 9001:200 company, was incorporated on 15 March

1978 as a wholly state government owned company with 164 employees which
manufactures and sells three wheeler automobiles. Its initial investment was Rs.
Four crores and it rose to 12 crores. It had technical collaboration with API,
 112

Bombay, but from 1987 it developed own technology and continued as an

independent company. The products include Petrol and Diesel models of various
three wheeler auto rickshaw, passenger vehicle and delivery van. KAL is also
manufacturing sophisticated components to be used in space programs of
VSSC/ISRO. The Company had manufactured and marketed more than 85,000
three Wheelers and also exported a number of them. Present production capacity
is nearly 9000 vehicles per year. The company is facing vigorous competition
from market giants such as Bajaj Automobiles.

The company incurred a huge loss and was registered as a sick

unit under SIC Act 1985 before BIFR Delhi, which appointed M/s IDBI,
Bombay as operating agency. Under its guidance, the company could show
marginal profits for few years and came out of BIFR. Presently, however, the
company is struggling to attain a break-even, for which it has so many
limitations as a public sector organization. To keep cost down, it can neither
retrench its employees nor can it reduce salary, DA revisions have to be
promptly implemented. To add its worries, raw material costs are increasing day
by day

A detailed study showed the following problem areas:

1. Profits came down from Rs.266.42 lakhs in the year 2002-03 to -410
lakhs in 2008-09,
2. Current ratio, came down from 2.19 in 2002-03 to 1.27 in 2009-10
indicating that liquidity is very poor. Receivable to sales increases varies
from year to year. It indicates that the receivables management is very
poor,
3. Inventory turnover ratio varies from 4.55 to 2.91. It is of the fact that
inventory is not properly managed,
 113

4. Fixed asset turnover ratio seems better. But on going deep into the
details, it can be seen that the value of net fixed asset is very low because
of the depreciation for so many years. The machines are obsolete.
5. The Net profit to sales ratio and return on investment also present a
serious problem arising from a huge loss.

Table 4.3 gives the production details for the year 2009.It can be seen
that in most of the months, production could not be achieved as planned. Total
planned production for the year was 3845 nos., whereas achievement was only
2957 nos., which was only 76.91 per cent. Considering the installed capacity of
9000 nos. per year achievement is only 32.86 per cent of the installed capacity.

Table 4.3 Production Plan/Achieved During 2009 of KAL

Production Production
Month Reason for Shortage
Planned Achieved
Shortage of 30 items including
January 200 150
internal and external items
February 250 201 Shortage of items
March 305 250 Shortage of items
April 365 250 Shortage of items
May 350 250 Shortage of items
June 325 325 Shortage of items
July 350 350 Shortage of 27 items
August 400 250 Shortage of 27 items
September 400 325 Shortage of 10 items
October 400 350 Shortage of 24 items
November 350 200 Shortage of 30 items
December 150 56 Shortage of items
Total 3845 2957
 114

The table provides the mismatch between achieved production and

the monthly production schedule. The main reason for the lower production with
that of production schedule is the shortage of certain materials supplied both
internally as well as by outside agencies. Also, computers are not used for
inventory control. Production plan is mainly depending on manual stock list
where it is difficult to get up to date data for planning and control.

Details of monthly production of KAL from 2001-02 to 2011-12 is

shown in Table 4.4 and figure 4.2 and the descriptive statistics of the same is
given in Table 4.5.
 115

Table 4.4 Monthly Production of KAL from 2001-02 to 2011-12

Monthly Production of KAL from 2001-2 to 2011-12

Month 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
April 325 510 530 430 250 178 450 150 250 100 120
May 520 587 450 500 655 182 150 130 104 150 0
June 510 563 535 450 510 365 70 50 326 175 120
July 525 550 550 615 550 450 50 100 350 200 0
August 500 535 560 510 575 490 250 76 250 175 70
September 550 650 510 685 450 500 375 77 325 215 120
October 632 610 550 550 500 505 450 91 350 160 120
November 711 550 450 500 450 510 460 144 200 100 3
December 527 525 350 510 425 515 100 56 130 230 119
January 608 700 600 700 500 525 50 150 150 130 120
February 540 510 550 525 290 600 10 201 150 110 150
March 512 610 570 750 325 600 10 250 165 5 100
Total 6460 6900 6205 6725 5480 5420 2425 1475 2750 1750 1042
Achieved
71.78 76.67 68.94 74.72 60.89 60.22 26.94 16.39 30.56 19.44 11.58
%
Installed Capacity=9000 / year
 116

Monthly Production of KAL from 2001-2 to 2011-12

800

Monthly Production in Number of three wheelers

700

2001-02 600

2002-03
500
2003-04
2004-05 400

2005-06
300
2006-07
2007-08 200

2008-09
100
2009-10
2010-11 0

2011-12

Month

Figure 4.2 Monthly Production of KAL from 2001-02 to 2011-12

 117

Table 4.5 Descriptive Statistics of Monthly Production of KAL

(No. of Three Wheelers)
Year Mean Max. Min. S.D
2001-02 538.33 711.00 325.00 91.80
2002-03 575.00 700.00 510.00 58.61
2003-04 517.08 600.00 350.00 68.90
2004-05 560.42 750.00 430.00 103.08
2005-06 456.67 655.00 250.00 119.68
2006-07 451.67 600.00 178.00 140.96
2007-08 202.08 460.00 10.00 183.96
2008-09 122.92 250.00 50.00 60.19
20009-10 229.17 350.00 104.00 91.27
2010-11 145.83 230.00 5.00 62.01
2011-12 86.83 150.00 0.00 54.85

It can be seen that there is no stability in production throughout

the year. There are very high fluctuations in month wise production and also
year wise production. The standard deviation of monthly production shows the
seriousness of the variation. If the variation is more the risk also is more.
Maximum, Minimum and S.D shows that there is no stability in production
throughout the year. Hence a lot of improvement is required in stabilizing
production. The main reason for low production is the very low demand for the
company's product. The reason for low demand is the poor quality of the vehicle.
The Company operating with limited production facilities is not able to modify
its old design to compete with the Bajaj and others. It has no automatic machines
to make cost effective and quality components. Also local manufactures imitate
the company's product and sell low quality vehicles with lower prices and more
commissions for dealers.
 118

Table 4.6 gives the grade wise allocation of man- power.

Table 4.6 Grade wise List of Employees

Sl. No. Grade No of Employees
1 Executives 15
2 Officers 47
3 Office Staff 41
4 Senior Tradesmen (HG) 46
5 Senior Tradesman & Tradesman 89
6 Three Wheeler Driver 3
7 Department Assistant 7
8 Helpers & Sweepers 20
Total 268

Strength of staff alone is 140 and strength of workers engaged in

direct production is only 128. Standard staff to worker ratio is 1:2. Here the ratio
is 1.1 to 1. It is a clear indication that manpower is not properly utilized for
production. There is scope for re-deployment of employees. The analysis given
above shows the sordid picture of a manufacturing firm that has been
functioning spiritedly since inception. For reviving the organization there
should be a drastic change in its functioning. Naturally it warrants a performance
assessment with the aim of implementing BPR.

4.1.6 Results of Preliminary Study

It is found that performances of these companies are far from

satisfactory during the period of study. Major reasons for poor performance of
most of the PSUs in Kerala as brought out by the study are:
1. Manpower utilization is very poor
2. Staff to worker ratio is more, hence less productivity per employee
 119

3. Ratio of actual production to installed capacity is very less

4. Obsolete Machinery and obsolete technology
5. Computers are not used even for inventory control
6. Rejects and scrap are more
7. Production loss due to material shortage of internal and external source
8. Actual working time are much less than that of normal working hours
9. Lack of flexibility in work and workers
10. Projects are not properly planned
11. High bargaining power of Trade Union make salary high and flexibility
limited

The study also pointed out some of the challenges faced by PSUs viz:
1 Depreciated assets
2 Lack of technological advancement and product diversification
3 Weak working capital management and nonperforming assets
4 Low competency level of existing human resources
5 Lack of strategic tie-ups
6 Lack of innovative marketing strategies

The PSUs which have been subjected to the preliminary study have
been either sick, necessitating the revival interference by BIFR and other
relevant agencies and or that their actual production and planned production
have been greatly diverging are proof of their poor performance. However, this
is valid only from the layman’s point of view. Hence a detailed study on the
financial performance of all the PSUs under the control of Department of
Industries is done in the second phase to assess whether there is the need and
scope of BPR in PSUs for their revival.
 120

4.2 FINANCIAL PERFORMANCE ANALYSIS OF PSUS OF

KERALA

The following is an analysis of the financial performance of 41 PSUs for

the period 2001-02 to 2014-15. The tools employed here are:
1. Net Profit/Loss,
2. Net profit ratio (NPR),
3. Return on Capital Employed (ROCE), and
4. Altman’s Z’ SCORE model.

4.2.1 Net Profit/Loss

Net profit made by each of the 41 PSUs from 2001-02 to 2014-15 is

given in Table 4.7. Table 4.8 and Figure 4.3 make a presentation of aggregate
net profits of 41 PSUs under study.
 121

Table 4.7 Profit/Loss of 41 State PSUs during 2001-02 to 2014-15

Sl. (Rs. in lakhs)

No. Name of Company /Year 2001-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15
CHEMECAL SECTOR
The Kerala Minerals and Metals Ltd. (CH-
1 10051 9358 4965 3920 1782 2243 1044 4674 9245 6271 15408 7312 2641 (2478)
1)
Kerala State Drugs and Pharmaceuticals
2 (795) (801) (741) (655) (664) (582) (407) (322) 218 425 253 (188) (1012) (703)
Ltd. (CH-2)
3 Malabar Cements Ltd.(CH-3) 846 (1126) 177 (250) 540 2705 3994 4786 3032 4419 5134 3197 241 1945
4 The Travancore Cements Ltd.(CH-4) (109) (224) (299) (275) (413) (84) 10 (77) (198) (51) (843) (343) (594) (1091)
Travancore Cochin Chemicals Ltd. (CH-
5 (667) (618) 101 (831) 571 1 80 (292) (264) (444) 299 173 (323) 69
5)
Travancore Titanium Products Ltd. (CH-
6 593 9 118 239 (1553) (350) 603 (1987) 1323 1913 2071 124 (34) (2425)
6)
Kerala State Mineral Development
7 0 (0) (2) (5) (6) (6) (6) (4) (46) 69 (144) (3) (5) (18)
Corporation Ltd.(CH-7)
SUB-TOTAL 9919 6598 4320 2143 257 3927 5318 6777 13310 12603 22179 10272 915 (4701)
CERAMICS & REFRACTORIES
8 Kerala Ceramics Ltd.(CR-8) (182) (69) (71) (158) (72) (18) 40 19 (115) (231) (277) (484) (625) (732)
9 Kerala Clays and Ceramics Ltd. (CR-9) 41 (86) 91 115 83 95 120 202 211 217 224 102 125 84
SUB-TOTAL (141) (155) 20 (42) 11 77 160 221 96 (14) (53) (382) (500) (648)
DEVELOPMENT & INFRASTRUCTURE AGENCIES
Kerala State Industrial Development
10 811 914 881 1329 1682 3671 2183 1908 2194 3530 3933 5755 4351 3218
Corporation Ltd.(DI-10)
Kerala State Industrial Enterprises Ltd.
11 91 224 276 395 388 501 574 561 622 465 647 692 50 (558)
(DI-11)
Kerala Small Industries Development
12 (344) (255) (120) (54) (181) 89 225 139 28 154 190 306 (421) (175)
Corporation Ltd. (DI-12)
Kerala Industrial Infrastructure
13 (43) 13 (5) 33 11 91 117 6731 2905 927 980 1393 428 472
Development Corporation (DI-13)
SUB-TOTAL 515 895 1031 1703 1901 4353 3100 9340 5749 5075 5749 8147 4408 2957
 122

Table 4.7 (Continued)

ELECTRICAL INDUSTRIES
Kerala Electrical and Alied Engineering Company
14 (1120) (118) (627) 356 (111) 122 450 252 140 (349) (599) (649) (380) (809)
Ltd. (EL-14)
15 United Electrical Industries Ltd. (EL-15) 209 (151) (322) (285) (312) 234 61 45 (249) (677) (469) (526) (911) (112)
16 Traco Cables Company Ltd. (EL-16) (906) (887) (796) (718) (658) (219) (331) (273) 662 264 (263) (774) (406) (727)
17 Transformers and Electricals Kerala Ltd. (EL-17) 1088 699 680 208 162 1374 2439 5098 4526 2753 1875 233 14 (3316)
SUB-TOTAL (729) (457) (1065) (439) (920) 1512 2619 5121 5079 1990 545 (1716) (1683) (4964)
ELECTRONICS
Kerala State Electronics Development
18 (5235) (5137) (4948) (4471) (3816) 1634 605 631 1204 1061 1473 540 135 (417)
Corporation Ltd.(EC-18)
19 Keltron Electro Ceramics Ltd.(EC-19) 2 1 (6) (29) (89) 18 (100) 6 (147) 115 122 26 44 33
20 Keltron Component Complex Ltd. (EC-20) (299) (348) (165) (385) (305) (245) (49) (288) (92) (237) (97) (93) (562) (152)
21 Keltron Crystals Ltd. (EC-21) (185) (173) (162) (225) (222) (44) (51)
22 Keltron Mangetics Ltd. (EC-22) (40) (41) (35) (30) (25) 79 79 Companies Amalgamated in Keltron Component Complex
23 Keltron Resistors Ltd. (EC-23) (8) (25) (47) (62) (65) (17) (8)
SUB-TOTAL (5765) (5723) (5119) (4885) (4210) 1406 456 349 964 938 1498 474 (383) (536)
ENGINEERING AND MANUFACTURING
24 The Metal Industries Ltd. (EM-24) 21 (10) (13) (12) (28) (3) 82 75 18 (43) (44) (75) (155) (151)
25 Steel Complex Ltd. (EM-25) (539) (286) (333) (265) (158) (130) (28) (164) (890) (384) 395 (467) (648) (682)
26 Steel Industries Kerala Ltd. (EM-26) (299) (618) (685) (628) (383) (167) 10 21 235 121 69 121 3 2
27 Kerala Automobiles Ltd. (EM-27) 248 266 132 28 (237) (126) (425) (410) 5 (113) (571) (970) (905) (688)
28 Steel and Industrial Forgings Ltd. (EM-28) 30 10 62 87 174 221 876 895 909 704 435 24 (178) (154)
29 Autokast Ltd. (EM-29) (870) (1080) (381) (322) 241 20 (349) (483) (36) (176) (250) (638) (636) (689)
30 Forest Industries (Travancore) Ltd. (EM-30) (12) 5 21 32 38 38 15 10 13 33 16 70 79 85
SUB-TOTAL (1421) (1713) (1198) (1080) (352) (147) 181 (56) 254 141 50 (1935) (2440) (2276)
 123

Table 4.7 (Continued)

TEXTILES
31 Kerala Garments Ltd. (TX-31) (114) (107) (53) (25) (27) (27) (87) (25) (65) Company Stopped activiteis.
Kerala State Textile Corporation Ltd. (TX-
32 (614) (537) (777) (287) (145) 83 (371) (483) 49 (184) (2174) (1005) (2158) (2408)
32)
33 Sitharam Textiles Ltd. (TX-33) (271) (255) (259) (243) (170) (92) (209) (154) 42 87 (249) (51) (338) (467)
SUB-TOTAL (885) (792) (1036) (530) (316) (9) (579) (637) 92 (97) (2423) (1056) (2496) (2876)
TRADITIONAL INDUSTRIES
34 Foam Mattings (India) Limited (TI-34) (79) (11) 5 (0) (34) 11 51 (1) 17 (104) (223) (128) (20) 24
Handicrafts Development Corporation
35 (118) (125) (133) (4) (98) 28 39 60 114 69 (205) (151) (224) (216)
(Kerala) Ltd. (TI-35)
Kerala State Bamboo Corporation Ltd.(TI-
36 (9) (98) (257) (284) (196) (197) 21 16 85 22 (328) (494) (615) (358)
36)
Kerala State Handloom Development
37 (195) (405) (387) (418) (403) (409) (376) (357) (522) (478) (766) (623) (388) (519)
Corporation Ltd. (TI-37)
38 Kerala State Coir Corporation Ltd. (TI-38) (113) (62) (11) (86) (57) (152) (80) (25) 65 170 365 231 114 240
Kerala State Cashew Development
39 (3442) (1427) (1782) (4098) (3968) (1366) (910) (563) (86) (245) (296) (411) (3274) (3279)
Corporation Ltd. (TI-39)
SUB-TOTAL (3955) (2128) (2565) (4889) (4755) (2085) (1254) (871) (327) (566) (1454) (1576) (4407) (4109)
WELFARE AGENCIES
Kerala Artisans Development Corporation
40 (1) (6) (8) (1) (6) (16) (8) 21 1 (24) (2) (32) 19 38
Ltd. (WA-40)
Kerala State Palmyrah Products Dev. &
41 (11) (23) 5 (24) 5 (6) 7 (1) (0) (1) (16) 11 (25) 1
Workers Welfare Corporation Ltd. (WA-41)
SUB-TOTAL (12) (29) (3) (26) (0) (22) (1) 20 1 (25) (17) (22) (6) 39
Total Profit / Loss (2473) (3503) (5615) (8044) (8385) 9012 10000 20264 25216 20046 26074 12206 (6592) (17113)

( ) Indicates loss
 124

Table 4.8 Total Net Profit of 41 PSUs

Year Total Profit / Loss (Rs. in lakhs)
2001-02 -2473
2002-03 -3503
2003-04 -5615
2004-05 -8044
2005-06 -8385
2006-07 9012
2007-08 10000
2008-09 20264
2009-10 25216
2010-11 20046
2011-12 26074
2012-13 12206
2013-14 -6592
2014-15 -17113

Total Profit of 41 companies from 2001-02

30000
25000
to 2014-15
20000
15000
10000
Profit/Loss

5000
0
-5000
-10000
-15000
-20000

Figure 4.3 Total Profit/Loss of 41 companies from 2001-02 to 2014-15

 125

It is seen from Table 4.8 that the aggregate net profit of 41 public
sector units was negative from 2001-02 to 2005-06 resulting in a combined loss
of Rs.8385 lakhs by 2005-06. But from 2006-07 the situation changed and the
PSUs started making profit; by 2011-12 the total profit earned was of Rs.26074
Lakhs. But it slipped down again and reached negative reaching a huge loss of
Rs.17133Lakhs during 2014-15. This is made clear visually by Figure 4.3.

An attempt is made to present Industry wise analysis of net profit/

loss made by the PSUs in the following sections.

4.2.1.1 Chemical Industry

There are seven PSUs in chemical sector. The profit/loss made by

companies in the chemical sector is shown in Figure 4.4.

Net Profit/Loss (Rs. in lakhs) of Chemical

Sector
20000.00

15000.00

10000.00

5000.00

0.00

-5000.00

The Kerala Menerals and Metals Ltd. Kerala State Drugs & Pharm. Ltd.
Malabar Cements Ltd. The Travencore Cements Ltd.
Travencore Cochin Chemicals Ltd. Travencore Titanium Products Ltd.
Kerala State Men. Dev. Corp. Ltd.

Figure 4.4 Net Profit/Loss of Chemical Sector

 126

Of the seven companies in the Chemical sector, four were incurring

loss for most of the years. The Travancore Cements Ltd. incurred loss for 13 out
of 14years, Kerala State Mineral Development Corporation Ltd. was in loss for
12 years, Kerala State Drugs & Pharmaceuticals Ltd. for 11years and
Travancore Cochin Chemicals Ltd. incurred loss for seven out of 14years.
Travancore Titanium Products Ltd. incurred loss for only four years and
Malabar cements ltd. incurred loss for only two years. The Kerala Minerals and
Metals Ltd. (KMML) was making profit for all years except last year. But it can
be seen that the profit made by this company got reduced from Rs. 10,051 to
1,782 during the period 2001-02 to 2005-6 and increased to Rs.15, 408 on 2011-
12 and incurred loss of Rs. 2,478 during 2014-15. The huge loss incurred during
the last year is a very bad signal. In the aggregate, the chemical sector is found
to be making profit/loss during the study period and following the trend of
KMML. Total profit made by this sector is positive except last year as in the
case of the giant in this sector, KMML. This unit has a huge advantage of
receiving raw materials at low cost as the surrounding area is rich in minerals
and the main raw material, which is mined and supplied by Indian Rare Earths
Ltd. (IRE). Negative trend indicated during the last two to three years signals
for immediate drastic revival steps to be taken in the case of KMML as well as
the chemical sector as a whole.

4.2.1.2 Ceramics & Refractory Sector

The Net profit/loss made by this sector is shown in Figure 4.5. It is

seen that Kerala Ceramics Ltd. has been incurring loss for all the period except
two years and Kerala Clays & Ceramics Ltd. has been making profit for all the
period except one year. Here the total performance of this sector is the average
of the two units and total negative trend is due to the heavy loss made by Kerala
Ceramics Ltd. It could not improve its performance in spite of government
support.
 127

Net Profit/Loss of Ceramics & Refractories

400.0

200.0

0.0

-200.0

-400.0

-600.0

-800.0

Kerala Ceramics Ltd. Kerala Clays and Ceramics Ltd.

Figure 4.5 Net Profit/Loss of Ceramics & Refractories

The main reasons were discussed in the preliminary study on the

current performance of selected PSUs in section 4.2.2. Revival through
complete BPR is the best solution for its revival.

4.2.1.3 Developmental and Infrastructural Agencies

The Net profit/loss made by this sector is shown in Figure 4.6. It is

evident that one of the four agencies, Kerala State Industrial Development
Corporation Ltd., shows net profit during the whole study period. Another one,
Kerala State Industrial Enterprises Ltd. was working profitably the whole period
except last year. Kerala Industrial Infrastructure Development Corporation
incurred loss for two years and Kerala Small Industries Development
Corporation Ltd. incurred loss for seven years out of 14 years. The overall net
profit of this sector is positive and its overall performance is comparatively
better.
 128

8000.00
7000.00
6000.00
5000.00
4000.00
3000.00
2000.00
1000.00
0.00
-1000.00

Kerala State Indust. Dev. Corporation Ltd.

Kerala State Industrial Enterprises Ltd.
Kerala Small Indust. Deve. Corporation Ltd.
Kerala Indust. Infrastruct. Dev. Corporation

Figure 4.6 Net Profit of Development & Infrastructure Agencies

However, the positive performance does not carry much relevance.

Firstly, the total net profit is decided by the major firm - Kerala State Industrial
Development Corporation Ltd. Further these agencies are charged with
developmental work on behalf of the government. The net of income and
expenditure is decided by the fund provided by government.

4.2.1.4 Electrical Industry

The net profit/loss made by electrical sector is shown in figure 4.7.

 129

Net Profit Electrical Sector

6000.00
5000.00
4000.00
3000.00
2000.00
1000.00
0.00
-1000.00
-2000.00
-3000.00
-4000.00

Kerala Electrical and Alied Engineering Company Ltd.

Unitied Electrical Industries Ltd.
Traco Cables Company Ltd.
Transformers and Electricals Kerala Ltd.

Figure 4.7 Net Profit Electrical Sector

There are four companies in this sector, of which one company is in

profit for the whole period, except the last year. Other three companies were in
loss for most of the years. The total profit of this sector is positive only in the
middle period of the study, six years from 2006-07 to 2011-12. During the first
five years and last three years this sector was incurring loss. Keeping up with
the trend of the PSUs, Electrical Industry also suffered loss during 2001-02 to
2005-06, but started making profit since then.

The main contribution for the total profit is made by the electronic
major - Transformers and Electricals Kerala Ltd. The main loss maker in the
sector is United Electrical Industries Ltd. Here also the recommended solution
is implementation of BPR after assessing possible improvements in these
organizations.
 130

4.2.1.5 Electronic Industry

The profitability of Electronic Industry is detailed in figure 4.8.

Net Profit Electronics Sector

3000.00
2000.00
1000.00
0.00
-1000.00
-2000.00
-3000.00
-4000.00
-5000.00
-6000.00
-7000.00

Net Profit Electronics Sector Keltron Resistors Ltd

Net Profit Electronics Sector Keltron Magnetics Ltd

Figure 4.8 Net Profit Electronics Sector

The performance of Electronic Industry gives almost the same

general features of the SPSUs of Kerala. It made huge loss up to 2005-06. A
recovery was in sight during 2005-06 to 2012-13, though profit was meagre.
Three of the individual companies; Keltron Crystals Ltd., Keltron Magnetics
Ltd. and Keltron Resistors Ltd. were amalgamated in Keltron Component
Complex Ltd. In the year 2008-09 on account of poor performance made their
survival impossible. The amalgamated company is also in huge loss. KSEDC is
the holding company. Its performance has improved due to some revival steps
taken by the company and the government. It requires, however a major revival
for a long tern survival and sustained growth, necessitating a detailed study to
know the level of PPI.
 131

4.2.1.6 Engineering and Manufacturing

Profit/Loss made by Engineering and Manufacturing sector is shown

in Figure 4.9. There are seven companies in this sector. There are no companies
working profitable for the whole period of study. Forest Industries (Travancore)
Ltd. is working in profit for the last 13 years out of 14 years. Steel and Industrial
Forgings Ltd. was working in profit for the first 12 years and now working in
loss for the last two years. Steel Complex Ltd. and Autokast Ltd. are cases just
opposite to these –the former incurring loss for 13 out of 14 years; and loss for
12 out of 14 years for the latter. Kerala Automobiles Ltd. shows another trend;
it was in profit for the first four years but turned into a loss-making firm for nine
out of last 10 years.

Net Profit Engineering and Manufacturing

1500.00

1000.00

500.00

0.00

-500.00

-1000.00

-1500.00

The Metal Industries Ltd. Steel Complex Ltd.

Steel Industries Kerala Ltd Kerala Automobiles Ltd.
Steel and Industrial Forgings Ltd. Autokast Ltd.
Forest Industries (Travancore) Ltd.

Figure 4.9 Net Profit Engineering and Manufacturing

Steel Industries Kerala Ltd. was making heavy loss for the first six
years and improved afterwards. It was making nominal profit for the past eight
years. The Metal Industries Ltd. was working in loss for eight years out of 14
years.
 132

The total profit of Engineering and Manufacturing sector is negative

for ten out of 14 years of the study period. To generalize the macro situation,
this sector has been in loss continuously for almost the entire period of study,
but started its recovery and turned out to make a meagre profit during 2009-10
to 2011-12. But in 2012-13 it again turned to make heavy loss. This alternating
experience of loss /profit is a lesson worth notice and lends support to the present
study.

4.2.1.7 Textile Industry

Profit/Loss made by Textile Sector is shown in Figure 4.10. The

figures show that the textile sector as a whole is in continuous loss. Out of 14
years of functioning the total profit has been negative in 13 years and made a
meager profit in just one year.

Net Profit Textile Sector

1000

-1000

-2000

-3000

-4000

Kerala Garments Limited Kerala State Textile corporation Ltd.

Sitharam Texiles Ltd.

Figure 4.10 Net Profit Textile Sector

Kerala Garments Limited stopped activities in 2007 and relieved all

employees under VRS. The precarious condition of this sector has been the
reason for creation of Kerala State Textile Corporation Ltd. Whether textile
sector is suitable for a state like Kerala where raw material is not available and
 133

labour cost is high compared to other states with indigenous advantages, is a

question worthy of consideration. The facts contributing to its poor performance
of this unit needs to be identified.

4.2.1.8 Traditional Industries

Profit/Loss made by traditional industries is shown in Figure 4.11.

Kerala Public Sector Traditional industry is incurring loss for the entire period
of study. A few companies made nominal profit in just a few years.

Net Profit Traditional Industries

1000.00

0.00

-1000.00

-2000.00

-3000.00

-4000.00

-5000.00

-6000.00

Kerala State Cashew Develop. Corporation Ltd.

Kerala State Coir Corporation Ltd.
Kerala State Handloom Develop. Corporation Ltd.
Kerala State Bamboo Corporation Ltd.

Figure 4.11 Net Profits Traditional Industries

Foam Mattings (India) Ltd. and Handicrafts Development

Corporation (Kerala) Ltd. made very little profit for five out of 14 years. Kerala
State Bamboo Corporation Ltd. has shown profits in four years and Kerala State
Coir Corporation Ltd. is in profit for the last four years. Kerala State Handloom
Development Corporation Ltd. was making continuous loss for all the 14 years.
Similarly, Kerala State Cashew Development Corporation Ltd. was incurring
 134

loss for all the years but managed to reduce loss during 2006-07 to 2012-13 and
again increased its loss afterwards. The graph tells us that the trend of net profit
of traditional industry follows a pattern similar to that of Kerala State Cashew
Development Corporation. In short the traditional sector is made a victim of the
shoddy performance of the Kerala State Cashew Development Corporation. The
present analysis unambiguously shows that the Traditional Sector requires a
major revival similar to BPR.

4.2.1.9 Welfare Agencies

Performance of Welfare Agencies is shown in Figure 4.12.

Net Profit Welfare Agencies

120.00

100.00

80.00

60.00

40.00

20.00

0.00

-20.00

-40.00

Kerala State Palmyrah Products Dev. & Workers Welfare Corporation Ltd.
Kerala Artisans Development Corporation Ltd.

Figure 4.12 Net Profit Welfare Agencies

There are two organizations that work as Welfare Agencies; Kerala

Artisans Development Corporation Ltd. and Kerala State Palmyrah Products
Dev. & Workers Welfare Corporation Ltd. In 10 out of 14yearsKerala Artisans
Development Corporation Ltd. was incurring loss and made a meagre profit in
four years. The second company had incurred loss for nine out of 14 years and
 135

made a meagre profit in five years. Altogether the industry is showing a highly
fluctuating trend in profit.

4.2.2 Net Profit Ratio (NPR)

In the previous section performance of the 41 PSUs were analysed

using the Net Profit/Loss made for the last 14 years. Net profit is a good
indicator of the performance of organisations. However, it is to be pointed out
at the outset that Net profit/Loss of firms is a crude indicator of performance as
it is expressed in absolute/ total value. Further it fails to relate performance to
its turnover and / or capital involved and is difficult to compare the performance
of various organisations in various sectors. To solve this problem other
indicators are also used. NPR is a good indicator of performance which can be
used for comparing various sectors and various organizations. Comparison is
possible using industry average and standard values of performance levels.
Asiedu (2005),Zala (2010), Vanita (2012) have employed this tool in their
studies.

NPR is given by the following simple equation:

Net Profit
Net Profit Ratio (per cent) = ------------------ x 100
Net Sales

NPR of 41 companies in various sectors for 14 years is given in Table

4.9. It is noticed that, there are as many negative NPR figures as in the net profit
table. The difference here is that it deals with a set of relative figures
corresponding to the total sales revenue. However, NPR has been made use of
to develop analytical tools for making inter-firm comparison Keener (2007),
developed the standard of Mean NPR. Accordingly, a Mean NPR of -1.15 shows
that the firm is ‘Distressed but Non-Bankrupt’ and a Mean NPR of -2.18 stands
for ‘Bankrupt Firms’. This value can vary slightly from country to country. This
 136

tool is used in the present study and the emerging analysis is presented in the
following section.
 137

Table 4.9 Net Profit Ratio of 41 State PSUs during 2001-02 to 2014-15

Company Mean
2001-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15
/Year Score

CHEMECAL SECTOR

CH-1 33.21 31.76 15.43 12.07 5.49 6.32 2.96 0.74 16.13 10.71 24.97 11.97 4.05 (4.61) 12.23
CH-2 (166.83) (169.29) (298.87) (8328.14) (2386.53) (170.22) (46.41) (26.93) 14.64 14.13 7.25 (13.20) (50.56) (31.16) (832.29)
CH-3 6.94 (10.28) 1.08 (1.50) 2.37 11.28 15.39 19.15 17.22 17.63 1.89 11.95 0.98 6.17 7.16
CH-4 (3.97) (7.63) (10.33) (9.90) (21.40) (3.05) 0.32 (1.99) (6.38) (5.64) (28.36) (12.96) (20.28) (36.98) (12.04)
CH-5 (6.39) (7.28) 0.97 (8.14) 4.54 0.01 0.74 (2.16) (2.27) (3.13) 1.76 0.95 (1.99) 0.40 (1.57)
CH-6 6.41 0.13 0.92 2.00 (11.60) (3.00) 5.74 (27.44) 9.95 11.82 11.22 3.22 (0.22) (20.17) (0.79)
CH-7 No Sales. Hence No figures (13.24) 12.85 1.43 (7.48) (13.82) (66.11) (14.39)
Mean (21.77) (27.10) (48.47) (1388.93) (401.19) (26.44) (3.54) (6.44) 5.15 8.34 2.88 (0.79) (11.69) (21.78) (138.70)
CERAMICS & REFRACTORIES
CR-8 (11.43) (10.28) (11.74) (26.01) (24.57) (1.86) 3.75 1.88 (17.29) (31.76) (47.58) (229.47) (321.67) (228.61) (68.33)
CR-9 13.81 23.25 25.71 28.96 19.41 19.86 22.66 30.69 32.86 31.97 28.56 14.90 12.15 7.28 22.29
1.19 6.49 6.99 1.48 (2.58) 9.00 13.20 16.28 7.78 0.11 (9.51) (107.29) (154.76) (110.66) (23.02)
DEVELOPMENT & INFRASTRUCTURE AGENCIES
DI-10 28.07 30.73 37.66 65.92 82.41 161.60 73.69 73.31 94.93 109.77 148.95 96.46 79.42 64.05 81.93
DI-11 19.57 33.85 36.27 37.32 39.86 43.71 45.40 33.54 33.74 16.71 22.84 18.90 1.37 (14.79) 26.31
DI-12 (8.73) (8.76) (3.09) (0.68) (3.47) 1.82 4.60 1.43 0.33 0.74 1.03 1.25 (1.32) (0.50) (1.10)
DI-13 (25.90) 28.16 (3.88) 13.65 2.11 20.89 18.15 103.78 110.12 407.26 50.40 173.81 84.90 24.97 72.03
Mean 3.25 20.99 16.74 29.05 30.23 57.01 35.46 53.02 59.78 133.62 55.81 72.61 41.09 18.43 44.79
 138

Table 4.9 (Continued)

ELECTRICAL INDUSTRIES
EL-14 (31.93) (6.35) (11.64) (6.98) (1.87) 1.44 4.46 2.37 1.35 (3.26) (7.94) (9.40) (4.07) 8.56 (4.66)
EL-15 11.36 (12.25) (32.00) (40.10) (62.82) 6.54 1.56 0.92 (10.22) (86.13) (31.57) (190.32) (55.59) (7.91) (36.32)
EL-16 24.19 1.57 6.98 (17.20) (17.86) (4.25) 0.61 0.64 8.29 5.69 (4.71) (14.51) (3.65) (5.95) (1.44)
EL-17 (1.64) 8.43 7.29 2.18 1.33 (2.72) 4.56 21.57 19.94 13.42 8.69 1.38 0.08 (24.83) 4.26
Mean 0.50 (2.15) (7.34) (15.52) (20.31) 0.25 2.80 6.38 4.84 (17.57) (8.88) (53.21) (15.81) (7.53) (9.54)
ELECTRONICS
EC-18 74.90 76.55 (62.08) (59.38) 37.08 16.51 3.87 (2.88) (10.17) 3.16 4.94 1.75 2.61 (1.40) 6.10
EC-19 0.47 0.15 (2.00) (7.07) (24.50) 3.48 (27.95) 0.87 (28.90) 9.13 10.81 2.09 3.09 2.35 (4.14)
EC-20 (11.10) (11.53) (5.35) (15.67) (12.41) (10.29) (1.97) (7.81) (1.92) (4.83) (1.84) (1.59) (10.21) (2.56) (7.08)
EC-21 (284.15) (204.16) (150.18) (473.77) (324.73) (71.83) (51.20) (222.86)
EC022 (21.74) (16.18) (12.01) (8.80) (6.16) 10.33 12.98 Companies Amalgamated in Keltron Component Complex (5.94)
EC-23 (4.61) (15.92) (48.92) 41.41 43.22 9.09 4.58 4.12
Mean (41.04) (28.52) (46.76) (87.21) (47.92) (7.12) (9.95) (3.27) (13.66) 2.49 4.64 0.75 (1.50) (0.54) (19.97)
ENGINEERING AND MANUFACTURING
EM-24 (14.13) (4.24) (7.42) (8.49) (23.81) (1.47) 40.45 19.11 7.90 (25.44) (17.47) (20.40) (26.80) (42.15) (8.88)
EM-25 (54.41) (16.22) (246.91) (14.22) (13.02) (15.31) (1.15) (3.04) (47.74) (25.14) (15.44) (14.56) (31.73) (38.36) (38.38)
EM-26 (17.00) (31.14) (52.88) (41.03) (30.63) (13.78) 0.62 1.14 9.95 4.06 3.67 4.98 0.10 0.09 (11.56)
EM-27 5.64 5.83 2.98 0.59 (7.03) (2.81) (23.18) (36.22) (6.10) (29.35) (69.41) (120.11) (148.30) (98.45) (37.57)
EM-28 1.18 4.38 5.31 4.79 6.75 7.22 12.70 14.45 15.12 12.09 7.26 0.52 (3.48) (2.71) 6.11
EM-29 (70.68) (117.29) (38.22) (24.08) (17.78) 1.55 (28.10) (31.24) (15.98) (9.50) (11.07) (31.93) (31.03) (40.88) (33.30)
EM-30 (2.88) 1.64 3.62 5.23 5.29 6.54 5.41 1.42 4.53 0.59 1.05 4.32 2.52 2.01 2.95
Mean (21.76) (22.43) (47.65) (11.03) (11.46) (2.58) 0.97 (4.91) (4.62) (10.38) (14.49) (25.31) (34.10) (31.49) (17.23)
 139

Table 4.9 (Continued)

TEXTILES
TX-31 (181.48) (201.84) (90.67) (124.90) (92.37) (722.26) (1570.61) (5270.87) (12684.31) Company Stopped activities (2326.59)
TX-32 (14.27) (13.23) (22.04) (8.97) (5.36) 2.26 (8.65) (14.93) 1.17 (4.03) (44.10) (14.86) (35.97) (49.09) (16.58)
TX-33 (33.97) (64.86) (40.36) (40.47) (27.00) (13.83) (29.60) (20.66) 3.60 6.45 (19.35) (3.93) (24.94) (34.25) (24.51)
Mean (76.57) (93.31) (51.02) (58.11) (41.58) (244.61) (536.29) (1768.82) (4226.51) 1.21 (31.73) (9.39) (30.46) (41.67) (514.92)
TRADITIONAL INDUSTRIES
TI-34 (18.65) (2.02) 0.86 2.87 (7.24) 2.55 7.61 (0.24) 1.87 (13.26) (38.62) (20.14) (3.01) 2.85 (6.04)
TI-35 (23.93) (24.68) (28.83) (0.96) (21.56) 6.93 10.03 16.27 29.55 (8.84) (48.73) (31.22) (43.84) (43.77) (15.26)
TI-36 (6.45) (11.30) (28.76) (29.35) (21.26) (21.57) 1.71 1.32 27.53 (34.91) (47.91) (41.61) (53.65) (29.02) (21.09)
TI-37 (11.38) (30.77) (40.08) (18.21) (25.37) (29.66) (31.20) (33.63) (7.15) (16.03) (48.10) (31.03) (18.02) (22.94) (25.97)
TI-38 (33.53) (14.04) (4.54) (23.26) (16.70) (51.91) (5.90) (0.74) 1.33 2.20 3.99 2.07 1.15 2.24 (9.83)
TI-39 (67.69) (867.18) (145.81) 122.58 44.23 (19.61) (14.87) (4.45) (0.48) (1.15) (1.09) (3.35) (0.03) (22.32) (70.09)
Mean (26.94) (158.33) (41.19) 8.95 (7.98) (18.88) (5.44) (3.58) 8.78 (12.00) (30.08) (20.88) (19.57) (18.83) (24.71)
WELFARE AGENCIES
WA-40 (2.25) (15.99) (13.89) (10.63) (33.41) (61.84) (3.90) (0.21) (0.05) (1.13) (0.12) (2.44) 1.50 2.11 (10.16)
WA-41 (223.54) (641.31) (655.14) (677.40) (727.06) (75.90) 74.13 (10.82) (0.39) (0.68) (5.51) 18.19 (104.94) 9.09 (215.80)
Mean (24.59) (160.33) (43.30) 7.02 (11.72) (28.08) (7.08) (3.57) 8.50 (10.27) (24.58) (18.35) (18.92) (18.93) (25.30)

GRAND
(14.89) (30.44) (24.26) (209.31) (66.42) 0.29 4.55 8.21 9.68 15.19 0.84 (18.80) (27.96) (24.64) (27.00)
MEAN
 140

The Chemical Sector shows whopping negative values of NPR

during most of the years in majority of organisations. Even though taking mean
NPR is not advisable for statistical point of view, it is used here for mere
comparative purpose. The only company in chemical sector with satisfactory
NPR is Kerala Minerals and Metals Ltd. But during the last year its NPR is also
negative which is a bad indication of lack in financial performance. As pointed
out earlier, NPR value less than -2.18 shows the ‘Bankruptcy’ property.
Majority of the companies in this sector shows ‘bankruptcy’ values in most of
the years. Going down to the micro level, Kerala Minerals and Metals Ltd. and
Malabar Cements Ltd. show a comparatively good NPR, the average for the
former is 12.23 for 14 years and 7.16 for the latter.

In the Ceramics & Refractory Sector, Kerala Clays and Ceramics

Ltd. have very good NPR values in all the years indicating a high level of
Profitability. Average NPR comes to 22.29 per cent which shows that the
company has 22.29 per cent profit for its sales. Kerala Ceramics Ltd. has NPR
value of -33.9 which shows a high level of financial distress and bankruptcy of
the company.

In the case of Development & Infrastructure Agencies, three have

good NPR, while the fourth unit viz. Kerala Small Industries Development
Corporation Ltd. shows fluctuating values during the study period. It had NPR
value below bankruptcy in four years out of 14 years. Values in other years are
also not satisfactory. It shows the need for revival of the firm.

NPR in the Electrical Sector shows that performances of three out of

four firms are poor whereas the other firm is comparatively better in most of the
years. Even though, Transformers and Electricals Kerala Ltd. Shows good NPR
values in majority of years, the value is very low (-24 per cent) during the last
year. United Electrical Industries Ltd. has very high negative values in almost
 141

all years showing bankruptcy and appalling performance of that company. Traco
Cables Company Ltd. is also in bankruptcy in majority of the years.

The Electronics Industry in Kerala is under the holding company,

KSEDC. Mean NPR for all these companies is -19.97 per cent implying
exceedingly poor performance. Individually, four out of five companies show
high negative NPR and only Keltron Resistors has a positive NPR. Three
companies under KSEDC - Keltron Crystals Ltd, Keltron Magnetics Ltd., and
Keltron Resistors Ltd.- were amalgamated into the Keltron Component
Complex Ltd. as a part of revival process. NPR of this company is still negative.
KSEDC, the mother organisation of all companies in Electronic sector, shows
fluctuating trend in NPR values. It shows satisfactory values in majority of years
but shows bankruptcy values in four out of 14 years. The NPR of the Electronic
sector is indicative of the need for major restructuring for its revival.

In the Engineering & Manufacturing Sector, five out of seven

companies show high negative values for its mean NPR, below bankruptcy
value of -2.14. All these companies are in high financial distress and bankrupt.
The companies having satisfactory value of mean NPR are: Steel and Industrial
Forgings Ltd. (mean NPR 6.6 per cent) and Forest Industries (Travancore) Ltd.
(mean NPR 2.95 per cent). Their performance can be treated as comparatively
good. Hence majority of the companies in sector require revival through Re-
engineering.

In the case of Textile Sector, all three companies have negative mean
NPR, value below bankruptcy value. Kerala Garments Ltd. with a whopping
negative NPR of -2326.6 downed shutters in 2010-11. Kerala State Textile
Corporation Ltd. and Sitaram Textiles Ltd. have high negative NPR for 13and
12 years respectively with mean NPR value of -16.58 per cent and 24.51 per
 142

cent. It can easily be interpreted that performance of Public Sector Textile

Industry in Kerala is in high financial distress and bankrupt.

All the six companies in Traditional Sectors have negative mean

NPR, all below bankruptcy value. Kerala State Handloom Development
Corporation Ltd. has negative NPR for all the 14years having mean NPR of -
25.97 per cent. Though the Kerala State Cashew Development Corporation Ltd.
has a mean NPR of -70.09, it showed a good sign of improvement during 2008-
09 to 2013-14 but showed bad signal during the last year having NPR of -22.32.
Regarding this sector, as all the companies are in bankruptcy, all of them require
revival through re-engineering.

As in the case of Traditional Sector, Welfare Agencies also has high

negative figures in mean NPR, below bankruptcy value. So it can be interpreted
that their performance is also very poor and require re-engineering for its
revival.

4.2.3 Return on Capital Employed (ROCE)

Muth (1954), Lammie (1959), Livingston & Brown (1961), Bentley

(1977), Coggan (2001) and a few others have affirmed that Return on Capital
(ROC) is one of the best measures of performance and managerial effectiveness
at Industry and company levels. Return on Capital Employed (ROCE)is given
by the simple equation:
Net profit
R O C E (percent) = ------------------ x 100
Capital Employed

ROCE tell us by how much the net profit responds to the capital
invested, keeping the other parameters of the internal business environment
constant. As per the study of Muth (1954), ROCE varies from a maximum of
14.6 per cent to a minimum of 6 per cent. Decline in ROCE is an indication of
 143

trouble ahead, in a low inflation, highly competitive and globalized economy

(Coggan 2001).

Industry and firm-wise ROCE of the selected PSUs are given in

Table 4.10.
 144

Table 4.10 Return On Capital Employed (%) of 41 State PSUs during 2001-02 to 2014-15
Company 2001- Mean
02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 SD
/Year 02 Score

CHEMECAL SECTOR
CH-1 30.65 24.33 11.51 9.10 4.12 4.74 2.30 0.77 16.93 12.39 26.04 11.33 4.05 (3.94) 11.02 10.26
CH-2 (16.59) (15.38) (13.02) (9.87) (9.32) (7.33) (4.90) (3.40) 2.23 8.72 5.22 (3.47) (20.16) (14.47) (7.27) 8.56
CH-3 8.36 (12.65) 1.76 (2.32) 4.29 20.19 24.79 25.89 15.30 19.44 21.50 12.66 0.94 7.62 10.55 11.38
CH-4 (9.75) (25.00) (47.37) (33.78) (43.89) (17.04) 2.03 (13.58) (33.62) (15.87) (97.20) (21.65) (27.42) (38.27) (30.17) 23.66
CH-5 (8.46) (8.84) 1.44 (11.51) 14.33 0.02 1.23 (4.48) (3.90) (7.16) 5.15 2.93 (5.46) (1.82) (1.90) 6.77
CH-6 9.89 0.15 2.00 4.05 (35.20) (6.89) 5.86 (22.08) 11.50 14.09 16.95 1.04 (0.28) (24.87) (1.70) 15.50
CH-7 0.31 (0.29) (1.20) (3.81) (4.73) (4.55) (5.07) (2.32) (26.03) 33.18 0.04 (0.45) (1.31) (1.54) (1.27) 11.93
Mean 2.06 (5.38) (6.41) (6.88) (10.06) (1.55) 3.75 (2.74) (2.52) 9.26 (3.19) 0.34 (7.09) (11.04) (2.96) 5.54
CERAMICS & REFRACTORIES
CR-8 (4.84) (3.91) (3.99) (8.93) (3.95) (0.94) 2.05 0.93 (3.26) (8.43) (9.22) (10.25) (10.14) (9.55) (5.32) 4.17
CR-9 13.63 26.49 24.40 27.26 17.97 18.73 21.50 29.98 26.87 23.99 21.74 6.59 8.36 5.92 19.53 8.03
Mean 4.39 11.29 10.20 9.17 7.01 8.89 11.77 15.46 11.81 7.78 6.26 (1.83) (0.89) (1.82) 7.11 5.41
DEVELOPMENT & INFRASTRUCTURE AGENCIES
DI-10 2.03 2.27 2.38 3.57 4.57 9.15 5.93 5.03 5.54 6.91 7.35 8.83 6.37 4.56 5.32 2.29
DI-11 13.88 32.10 32.11 34.79 32.74 34.14 32.04 26.86 24.07 13.35 13.41 12.78 1.04 (13.29) 20.72 14.47
DI-12 (11.37) (8.18) (3.72) (1.55) (4.85) 2.32 5.65 (35.12) (7.40) 1.88 2.21 3.40 (4.58) (1.91) (4.52) 10.08
DI-13 (0.28) 0.08 (0.02) 0.10 0.05 0.35 0.40 19.49 5.66 1.26 1.13 1.39 0.34 0.32 2.16 5.20
Mean 1.06 6.57 7.69 9.23 8.13 11.49 11.00 4.07 6.97 5.85 6.03 6.60 0.79 (2.58) 5.92 3.95
 145

Table 4.10 (Continued)

ELECTRICAL INDUSTRIES
EL-14 (12.73) (3.34) (6.08) 24.36 (0.99) 1.03 4.46 2.47 1.33 (3.13) (4.87) (4.89) (2.75) 5.65 0.04 8.46
EL-15 20.13 (16.97) (35.92) (38.83) (42.51) 25.04 6.50 4.48 (20.80) (37.77) (31.63) (33.76) (28.43) (5.79) (16.88) 22.94
EL-16 25.44 2.02 5.99 (17.80) (14.12) (4.50) 0.54 0.64 12.62 6.40 (12.53) (15.55) (5.70) (9.80) (1.88) 12.10
EL-17 (1.72) 10.84 10.16 2.95 2.19 (10.45) 21.29 64.39 45.80 25.72 16.16 1.98 0.12 (34.44) 11.07 23.92
7.78 (1.86) (6.46) (7.33) (13.86) 2.78 8.20 17.99 9.74 (2.19) (8.22) (13.05) (9.19) (11.10) (1.91) 9.78
ELECTRONICS
EC-18 19.36 17.90 (16.18) (14.92) 10.98 5.86 1.43 (1.26) (5.94) 1.95 3.59 1.29 1.94 (0.98) 1.79 10.20
EC-19 0.36 0.11 (1.31) (5.95) (18.29) 3.69 (18.66) 0.91 (22.25) 16.07 19.13 4.08 5.49 4.01 (0.90) 12.10
EC-20 (15.31) (15.67) (10.86) (22.79) (18.58) (14.59) (2.57) (7.62) (2.71) (6.96) (2.86) (2.36) (9.76) (2.78) (9.67) 6.81
EC-21 (18.22) (15.15) (12.63) (15.61) (13.75) (2.73) (2.86) (11.57) 6.24
EC022 (12.88) (11.73) (9.33) (7.35) (5.33) 10.68 17.65 Companies Amalgamated in Keltron Component Complex (2.61) 11.91
EC-23 (3.23) (9.98) (18.56) 23.02 22.94 5.46 2.33 3.14 15.69
Mean (4.99) (5.75) (11.48) (7.27) (3.67) 1.40 (0.45) (2.66) (10.30) 3.69 6.62 1.00 (0.78) 0.08 (2.47) 5.31
ENGINEERING AND MANUFACTURING
EM-24 (7.01) (2.26) (2.95) (2.73) (5.88) (0.58) 15.63 14.67 2.83 (4.68) (4.75) (8.09) (7.52) (9.33) (1.62) 7.80
EM-25 (15.16) (7.52) (45.09) (1.51) (1.21) (2.53) (0.45) (1.63) (135.32) (55.73) (230.35) (24.22) (21.73) (14.80) (39.80) 65.58
EM-26 (4.01) (7.98) (8.84) (8.02) (4.50) (1.52) 0.12 0.40 5.77 3.08 1.64 2.72 0.07 0.05 (1.50) 4.53
EM-27 15.82 20.21 10.41 2.12 (19.65) (14.13) (88.36) (27.87) (6.98) (27.30) 617.63 216.97 122.28 72.07 63.80 175.94
EM-28 1.29 5.23 7.47 8.82 15.92 18.17 30.86 27.56 21.39 15.05 8.26 0.41 (2.82) (2.56) 11.07 10.77
EM-29 (9.57) (11.19) (3.83) (3.23) (2.42) 0.29 (5.82) (6.66) (3.02) (2.28) 13.20 27.85 28.43 27.26 3.50 14.33
EM-30 (3.93) 2.36 7.10 9.43 9.91 10.97 7.30 2.05 6.99 1.11 1.89 8.90 6.26 6.02 5.45 4.19
Mean (3.22) (0.16) (5.10) 0.70 (1.12) 1.52 (5.82) 1.22 (15.48) (10.11) 58.22 32.08 17.85 11.24 5.84 19.22
 146

Table 4.10 (Continued)

TEXTILES
TX-31 (48.34) (45.65) (22.60) (14.42) (11.35) (82.33) (36.05) (23.03) (27.44) Company Stopped activiteis (34.58) 21.99
TX-32 (15.96) (14.40) (16.76) (5.72) (3.32) 1.32 (4.86) (7.26) 0.62 (1.29) (9.80) (3.93) (7.92) (8.00) (6.95) 5.75
TX-33 (9.38) (9.00) (8.35) (8.01) (4.85) (2.50) (5.76) (3.61) 0.80 1.83 (5.14) (0.98) (5.62) (7.52) (4.86) 3.59
Mean (24.56) (23.02) (15.90) (9.38) (6.51) (27.84) (15.55) (11.30) (8.67) 0.27 (7.47) (2.46) (6.77) (7.76) (11.92) 8.38
TRADITIONAL INDUSTRIES
TI-34 (7.21) (1.12) 0.45 1.70 (3.49) 1.13 5.43 (0.15) 1.23 (12.27) (38.96) (19.01) (3.45) 4.16 (5.11) 11.75
TI-35 (16.34) (16.16) (14.10) (0.40) (9.29) 2.22 3.01 4.04 6.53 (2.28) (7.95) (5.70) (7.86) (6.91) (5.08) 7.52
TI-36 (7.90) (10.46) (21.59) (25.90) (15.63) (14.48) 1.41 1.00 8.55 (16.28) (15.09) (12.03) (12.26) (7.28) (10.57) 9.27
TI-37 (7.64) (15.97) (24.48) (6.89) (8.47) (9.37) (8.55) (8.91) (3.74) (6.17) (19.27) (14.06) (7.39) (9.35) (10.73) 5.70
TI-38 (9.77) (3.07) (0.80) (5.75) (3.72) (9.99) (5.36) (1.61) 4.03 9.38 9.75 4.30 2.61 4.06 (0.42) 6.34
TI-39 (13.89) (5.69) (4.94) 8.88 8.53 (2.64) (1.86) (1.14) (0.15) (0.35) (0.42) (0.58) (4.06) (3.79) (1.58) 5.61
Mean (10.46) (8.75) (10.91) (4.73) (5.35) (5.52) (0.98) (1.13) 2.74 (4.66) (11.99) (7.85) (5.40) (3.19) (5.58) 4.17
WELFARE AGENCIES
WA-40 0.25 1.27 1.71 0.22 0.82 1.96 1.21 0.13 0.03 0.90 0.16 2.45 (1.18) (2.05) 0.56 1.20
WA-41 (21.50) (40.83) (21.03) 4.86 (39.82) (5.22) 5.89 (0.54) (0.29) (0.34) (4.97) 3.68 (7.53) 0.48 (9.08) 15.65
Mean (9.39) (8.41) (10.73) (4.94) (4.73) (5.40) (1.59) (1.09) 2.57 (2.78) (6.40) 2.45 2.45 2.45 (3.25) 4.63
GRAND
(0.33) (0.53) (3.19) (1.05) (2.61) 2.73 3.84 4.61 0.40 1.64 8.47 3.94 0.45 (1.82) 1.18 3.23
MEAN
 147

In Chemical Sector, as per Table 4.10, Kerala Minerals and Metals Ltd.
(KMML) has positive ROCE for13 years and negative value for the last year. Out
of seven organizations in this sector KMML has the highest average ROCE (11.02
per cent) for the last 14 years Malabar Cements gives positive ROCE for 12 out
of 14 years with an average of 10.55 per cent. The financial performance of these
organizations can be treated as satisfactory. Travancore Cements Ltd. has highest
negative figures for its mean ROCE (-30.17) for 14years indicating the need for
very high attention for its revival. Kerala State Drugs and Pharmaceuticals Ltd.
shows negative ROCE for the 11 years out of 14 years and its mean value of -7.27
shows that the performance is very poor require immediate steps for drastic
performance improvement. Kerala State Mineral Development Corporation Ltd.
also has negative ROCE for 11 years and the mean value is -2.96 indicating
requirement of drastic revival attempts. All other companies in this sector have
varying values of ROCE and average negative for last 14 years. In the case of
Travancore Titanium Products Ltd., in three out of 14 years there is very high
negative ROCE figures, but for five years, the figures are reasonably good. This
highly fluctuating trend in ROCE is not a good sign and steps must be taken to
stabilize the performance. In the case of Travancore Cochin Chemicals Ltd., the
ROCE is not favourable. For eight years the value is negative and for six years the
value is positive. Negative figures in recent years show that problems still exist in
the company necessitating immediate action for its revival. Overall results in this
sector clearly indicate that the financial performance of majority of organizations
in this sector is very poor. Negative figures of ROCE in most of the organizations
in recent years lead to the requirement of immediate action for its revival through
drastic performance improvement.

In the Ceramics Sector, Kerala Clays & Ceramics Ltd. has high ROCE
in most of the years and a mean value of 19.53 indicate better performance. On
the other hand, Kerala Ceramics Ltd. has a negative ROCE for 12 out of 14 years
and a mean value of -5.32 shows very poor performance. It also shows high
 148

fluctuating trend having a standard deviation of 4.17 for a mean of -5.32. Hence
Kerala Ceramics Ltd. requires further detailed study and immediate attention for
its revival.

Developmental and Infrastructure Agencies indicate better

performance in majority of organizations. Mean ROCE of Kerala State Industrial
Enterprises Ltd. is 20.72 which indicate very good performance but the standard
deviation (SD) of 14.47 indicate high fluctuating trend which is not a good
symptom. The main reason for this high ROCE is that the company is doing
trading and Cargo Clearance which does not require much capital and at the same
time highly profitable. Naturally ROCE is high. Kerala State Industrial
Development Corporation Ltd. (KSIDCL) has positive ROCE in all 14 years. A
mean of 5.32 and SD of 2.29 standard showed that the performance of KSIDCL
is not bad and almost stabilized. ROCE of Kerala Small Industries Development
Corporation Ltd. has been negative in the first five years and there after showed
fluctuating trend of positive and negative. The mean value of -4.52 indicates poor
performance and a SD of 10.08 shows high fluctuation. Kerala Industrial
Infrastructure Development Corporation Ltd. has negative figures for two years
and positive figures for the rest of the period, with an average of 2.16 per cent.
This return is comparatively low comparing industry average of minimum 6 per
cent. Also, SD of 5.2 indicates high fluctuation. Close attention of its performance
and suitable steps for its stability is required.

It can be seen that mean ROCE of one company, Transformers and

Electrical Kerala Ltd., out of the four companies in the Electrical sector is 11.07
per cent which indicate comparatively good performance. But the value in the last
year is -34.44 which is an alarming situation requiring detailed study. United
Electrical Industries Ltd. shows high negative figures of its ROCE in 10 out of 14
years and a mean of -16.88. It clearly indicates that the company is in a pathetic
condition, under financial distress and in bankruptcy. It requires immediate steps
 149

for revival through drastic performance improvement technique like BPR. The
other two companies in this sector also show fluctuating trend in ROCE with
negative figures and low positive values. Traco Cables Ltd. has negative ROCE
for seven out of 14years and an average of -1.88 per cent. For a mean of 1.88 per
cent, the SD of 12.1 per cent indicates that the performance of this company is
highly fluctuating. Kerala Electrical and Allied Engineering Company Ltd. shows
negative ROCE for eight out of 14 years and a mean of 0.04 per cent. Very high
value of SD (8.46 percent) indicate that the performance of this company is also
highly fluctuating. Electrical sector requires immediate steps for its revival though
drastic performance improvement techniques.

In Electronic Sector, the ROCE of the holding company is positive but

very low value of 1.79 percent. The other two companies, Keltron Electro
Ceramics has mean ROCE of -0.90 percent and Keltron Component Complex Ltd.
(KCCL) has mean ROCE of -9.67 per cent. Other three companies were
amalgamated to KCCL. But even after amalgamation the performance of KCCL
was very poor. This indicate that amalgamation of poorly performing
organizations is not a good solution for revival. One of the best solution is revival
through drastic performance improvement through BPR, after studying in detail
the reasons for poor performance and the level of possible performance
improvement each organisation.

In the Engineering and Manufacturing Sector, four out of seven

organisation showed positive values for mean ROCE. Kerala Automobiles Ltd.
had high positive values for the last four years (from 2011-12 to 2014-15). This
positive values of ROCE are misleading. This is positive only because the Capital
Employed and Net profits are negative values not because of their good
performance. As the capital employed had become negative and high negative
values of its profit, this indicate the highly pathetic condition of the organisation.
It requires immediate attention for its revival through drastic performance
 150

improvement techniques like BPR. Steel and Industrial Forgings Ltd has
satisfactory ROCE for nine out of 14 years but for the last three years, performance
came down and became negative. Forest Industries (Travancore) Ltd., have
positive and comparatively good value of ROCE. All other companies have
mostly negative ROCE. It can be interpreted that the performance of those
companies are poor and require immediate steps for improvement.

All three companies in Textile Sector shows negative value in most of

the years and mean ROCE are also negative. This sector requires immediate
attention for its revival. All the six companies in Traditional sector high negative
figures for its ROCE. The performance of this sector also can be treated as very
poor and require immediate revival. In the welfare sector, Kerala Artisan
Development Corporation Ltd. shows low positive ROCE for 12 out of 14 years
but has negative value in the last two years. Kerala State Palmyrah Products
Development and Workers Welfare Corporation Ltd. has a value of -9 for its
ROCE showing very poor return. In the case of welfare agencies is not expected
but government is funding for its welfare. All these companies having low value
for its ROCE require immediate attention to identify the causes for its low return,
and to assess whether it can be improved through BPR.

To analyse the stability of the 41 firms at the profit front the average of
ROCE and its SD for the 14 years is prepared. These figures are presented in Table
4.11.
 151

Table 4.11 Summary Statistics of Return on Capital Employed

Mean
Sl. Standard
Name of Company (14
No. Deviation
Years)
CHEMICAL SECTOR
1 The Kerala Minerals and Metals Ltd. 11.02 10.26
2 Kerala State Drugs and Pharmaceuticals Ltd. (7.27) 8.56
3 Malabar Cements Ltd. 10.55 11.38
4 The Travancore Cements Ltd. (30.17) 23.66
5 Travancore Cochin Chemicals Ltd. (1.90) 6.77
6 Travancore Titanium Products Ltd. (1.70) 15.50
7 Kerala State Mineral Development Corporation Ltd. (1.27) 11.93
Mean Score (2.96) 5.54
CERAMICS & REFRACTORIES
8 Kerala Ceramics Ltd. (5.32) 4.17
9 Kerala Clays and Ceramics Ltd. 19.53 8.03
Mean Score 7.11 5.41
DEVELOPMENT & INFRASTRUCTURE AGENCIES
10 Kerala State Industrial Development Corporation Ltd. 5.32 2.29
11 Kerala State Industrial Enterprises Ltd. 20.72 14.47
12 Kerala Small Industries Development Corporation Ltd. (4.52) 10.08
Kerala Industrial Infrastructure Development
13 2.16 5.20
Corporation
Mean Score 5.92 3.95
ELECTRICAL INDUSTRIES
14 Kerala Electrical and Allied Engineering Company Ltd. 0.04 8.46
15 United Electrical Industries Ltd. (16.88) 22.94
16 Traco Cables Company Ltd. (1.88) 12.10
17 Transformers and Electricals Kerala Ltd. 11.07 23.92
Mean Score (1.91) 9.78
ELECTRONICS
18 Kerala State Electronics Development Corporation Ltd. 1.79 10.20
19 Keltron Electro Ceramics Ltd. (0.90) 12.10
20 Keltron Component Complex Ltd. (9.67) 6.81
21 Keltron Crystals Ltd (11.57) 6.24
22 Keltron Magnetics Ltd (2.61) 11.91
23 Keltron Resistors Ltd 3.14 15.69
Mean Score (2.47) 5.31
 152

Table 4.11 (Continued)

ENGINEERING AND MANUFACTURING

24 The Metal Industries Ltd. (1.62) 7.80
25 Steel Complex Ltd. (39.80) 65.58
26 Steel Industries Kerala Ltd (1.50) 4.53
27 Kerala Automobiles Ltd. 63.80 175.94
28 Steel and Industrial Forgings Ltd. 11.07 10.77
29 Autokast Ltd. 3.50 14.33
30 Forest Industries (Travancore) Ltd. 5.45 4.19
Mean Score 5.84 19.22
TEXTILES
31 Kerala Garments Limited (34.58) 21.99
32 Kerala State Textile Corporation Ltd. (6.95) 5.75
33 Sitaram Textiles Ltd. (4.86) 3.59
Mean Score (11.92) 8.38
TRADITIONAL INDUSTRIES
34 Foam Mattings (India) Limited (5.11) 11.75
35 Handicrafts Development Corporation (Kerala) Ltd. (5.08) 7.52
36 Kerala State Bamboo Corporation Ltd. (10.57) 9.27
37 Kerala State Handloom Development Corporation Ltd. (10.73) 5.70
38 Kerala State Coir Corporation Ltd. (0.42) 6.34
39 Kerala State Cashew Development Corporation Ltd. (1.58) 5.61
Mean Score (5.58) 4.17
WELFARE AGENCIES
40 Kerala Artisans Development Corporation Ltd. 0.56 1.20
Kerala State Palmyrah Products Dev. & Workers Welfare
41 (9.08) 15.65
Corporation Ltd.
Mean Score (3.25) 4.63
GRAND MEAN 1.18 3.23

Table 4.14 tell us that 26 PSUs have negative ROCE out of 41 PSUs
which is 63.4 per cent. Most of the PSUs that have negative ROCE also has high
S.D indicating high fluctuation and poor stability.
 153

4.2.4 Altman’s Z’ SCORE Model

All 41 companies under study were again analysed using Altman’s

model for the evaluation of financial distress, Altman’s model is explained in
Literature Review and Methodology chapters. According to this model companies
can fall into three zones, based on their performance as given in Table 4.12.

Table 4.12 Altman's Z' Score model

Altman's Z' Score model

Zone Value of Z Interpretation
Zone-I <1.23 Distress Zone
Zone-II 1.23 to 2.9 Grey Zone
Zone-III > 2.9 Safe Zone
Bankruptcy Group Mean = 0.15
Non-Bankruptcy Group Mean = 04.14

Altman’s Z-Score is a good measure of performance as it is a

combination of various financial performance ratios. Altman’s Z-Score of the 41
PSUs in nine sectors under the present study is given in Table 4.12. The
performances of individual companies and sectors were analysed using this
standard yardstick of Z-Scores.
 154

Table 4.13 Altman Score of 41 SPSUs during 2001-02 to 2014-15

Sl. Company 2001- Mean
02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15
No. /Year 02 Score
CHEMECAL SECTOR
1 CH-1 1.96 1.68 1.17 1.11 0.97 1.15 0.97 1.33 1.56 1.14 1.52 1.38 1.28 0.93 1.30
2 CH-2 (0.44) (0.44) (0.42) (0.35) (0.34) (0.22) (0.08) 0.03 0.26 0.10 0.07 (0.20) (0.46) (0.39) (0.21)
3 CH-3 1.73 0.80 1.59 1.35 1.90 2.46 2.53 2.59 1.71 2.13 2.05 1.60 1.40 1.83 1.83
4 CH-4 1.79 1.58 1.55 1.16 0.16 1.70 2.21 2.14 1.35 0.58 (0.17) 0.23 0.06 (0.26) 1.01
5 CH-5 0.44 0.51 0.95 0.49 0.86 0.91 0.78 0.92 0.78 0.86 1.20 1.44 1.31 3.38 1.06
6 CH-6 1.00 0.85 1.31 1.37 0.94 0.80 0.84 (0.21) 1.00 1.26 1.16 1.05 1.13 0.31 0.92
7 CH-7 1.00 0.99 0.89 0.77 0.70 0.68 0.62 0.69 0.27 0.64 (0.33) 0.36 0.29 0.67 0.59
Mean Score 1.07 0.85 1.00 0.84 0.74 1.07 1.12 1.07 0.99 0.96 0.79 0.84 0.72 0.92 0.93
CERAMICS & REFRACTORIES
8 CR-8 0.03 (0.00) (0.06) (0.20) (0.19) 0.17 0.32 0.27 (0.06) (0.15) (0.17) (0.40) (0.30) (0.24) (0.07)
9 CR-9 1.65 2.17 2.03 2.11 1.82 1.90 1.98 2.04 1.96 1.79 1.71 1.10 1.10 1.05 1.74
Mean Score 0.84 1.09 0.98 0.95 0.81 1.04 1.15 1.16 0.95 0.82 0.77 0.35 0.40 0.40 0.84
DEVELOPMENT & INFRASTRUCTURE AGENCIES
10 DI-10 0.85 0.88 0.90 0.98 1.06 1.16 1.07 1.00 0.99 1.03 0.93 0.87 0.78 0.72 0.95
11 DI-11 0.91 1.50 1.82 1.94 1.52 1.94 1.85 1.70 1.58 1.04 0.75 0.88 0.64 0.26 1.31
12 DI-12 0.46 0.26 0.48 1.03 0.47 0.55 0.62 1.48 1.22 1.64 1.15 1.36 1.30 1.25 0.95
13 DI-13 0.58 0.61 0.64 0.44 0.64 0.61 0.57 1.10 0.77 0.68 0.67 0.69 1.59 0.61 0.73
Mean Score 0.70 0.81 0.96 1.10 0.92 1.07 1.03 1.32 1.14 1.09 0.87 0.95 1.08 0.71 0.98
 155

Table 4.13 (Continued)

ELECTRICAL INDUSTRIES
14 EL-14 0.11 0.50 0.44 5.41 0.69 0.99 0.94 0.88 0.87 0.77 0.51 0.44 0.66 0.72 1.00
15 EL-15 2.02 1.20 0.22 0.01 (0.44) 1.86 1.62 1.62 0.62 (0.41) (0.11) (0.54) (0.44) (0.18) 0.50
16 EL-16 0.72 0.65 1.27 0.35 0.31 0.67 0.69 0.62 1.51 1.23 0.40 0.20 1.06 1.05 0.77
17 EL-17 0.72 0.84 1.04 0.90 1.18 1.30 2.24 3.37 3.20 2.45 2.26 1.56 1.66 0.58 1.66
Mean Score 0.89 0.80 0.74 1.67 0.44 1.21 1.37 1.62 1.55 1.01 0.77 0.42 0.74 0.54 0.98
ELECTRONICS
18 EC-18 0.34 0.42 (0.25) (0.25) 0.15 0.66 0.57 0.55 0.43 0.72 0.68 0.64 0.66 0.56 0.42
19 EC-19 1.13 1.13 0.95 0.81 0.90 0.99 0.20 0.90 0.09 1.54 1.53 1.14 1.39 1.38 1.00
20 EC-20 0.61 0.60 1.02 0.40 0.42 0.43 0.64 0.52 0.81 0.68 0.73 0.87 0.59 0.82 0.65
21 EC-21 (0.57) (0.49) (0.41) (0.56) (0.49) (0.17) (0.17) (0.41)
22 EC022 (0.03) 0.11 0.28 0.32 0.47 1.04 1.50 Companies Amalgamated in Keltron Component Complex 0.53
23 EC-23 0.76 0.47 (0.00) 0.98 0.83 0.52 0.46 0.58
Mean Score 0.37 0.37 0.26 0.28 0.38 0.58 0.53 0.66 0.44 0.98 0.98 0.88 0.88 0.92 0.61
ENGINEERING AND MANUFACTURING
24 EM-24 1.33 1.43 1.30 1.14 0.97 1.25 1.94 2.69 1.69 0.93 1.00 2.23 1.72 0.28 1.42
25 EM-25 (0.22) 0.00 (0.15) (0.10) (0.05) (0.04) 0.38 0.50 (0.07) 0.60 3.92 0.72 (21.73) (0.09) (1.17)
26 EM-26 0.19 0.08 (0.05) (0.04) 0.04 0.11 0.23 0.41 0.60 0.64 0.44 0.52 0.63 0.54 0.31
27 EM-27 3.00 3.06 2.80 2.67 1.50 1.25 0.13 (0.36) 0.91 0.65 (0.15) (0.49) (1.75) (1.97) 0.80
28 EM-28 1.36 1.36 1.57 1.61 2.10 2.27 2.53 2.23 2.27 1.55 1.27 0.96 0.94 0.95 1.64
29 EM-29 (0.25) (0.35) (0.14) (0.11) (0.08) 0.01 (0.14) (0.16) (0.02) 0.03 0.05 (0.72) (0.81) (1.11) (0.27)
30 EM-30 1.29 1.47 1.44 1.50 1.12 1.17 1.21 0.77 0.91 0.99 1.08 1.06 1.76 1.87 1.26
Mean Score 0.96 1.01 0.97 0.95 0.80 0.86 0.90 0.87 0.90 0.77 1.09 0.61 (2.75) 0.07 0.57
 156

Table 4.13 (Continued)

TEXTILES

31 TX-31 (0.96) (0.92) (0.62) (0.54) (0.53) (0.75) (0.84) (0.71) (0.76) Company Stopped activiteis (0.74)

32 TX-32 0.53 0.48 0.15 0.45 0.50 0.67 0.42 0.18 0.44 0.38 (0.06) 0.17 (0.03) (0.09) 0.30

33 TX-33 (0.12) (0.22) (0.15) (0.12) (0.04) 0.04 (0.02) 0.02 0.24 0.35 0.07 0.21 0.35 (0.03) 0.04

Mean Score (0.18) (0.22) (0.21) (0.07) (0.02) (0.01) (0.15) (0.17) (0.02) 0.36 0.00 0.19 0.16 (0.06) (0.03)

TRADITIONAL INDUSTRIES

34 TI-34 0.57 0.82 0.88 1.12 0.79 0.89 1.19 0.98 0.98 0.44 (0.03) 0.18 0.38 0.35 0.68

35 TI-35 0.21 0.14 0.09 0.41 0.16 0.57 0.60 0.67 0.77 0.45 0.09 0.70 0.21 0.20 0.38

36 TI-36 1.45 1.08 0.33 0.20 0.38 0.30 0.85 0.85 1.27 (0.08) (0.20) (0.10) (0.14) 0.01 0.44

37 TI-37 0.46 0.20 (0.02) 0.38 0.26 0.23 0.16 0.15 (0.03) (0.17) (0.31) (0.21) (0.08) (0.14) 0.06

38 TI-38 0.83 0.56 0.35 0.26 0.29 0.07 0.50 0.82 1.29 1.89 1.38 1.19 1.29 1.67 0.89

39 TI-39 (0.13) (0.16) (0.05) (0.19) (0.12) (0.07) (0.05) 0.06 0.13 0.09 0.15 (0.01) (0.14) (0.15) (0.05)

Mean Score 0.56 0.44 0.27 0.36 0.29 0.33 0.54 0.59 0.74 0.44 0.18 0.29 0.25 0.32 0.40

WELFARE AGENCIES

40 WA-40 0.64 0.59 0.58 0.48 0.43 0.35 0.77 1.30 0.96 1.59 2.23 1.76 1.55 1.86 1.08

41 WA-41 0.47 (0.15) 0.57 (5.82) 0.30 0.27 0.66 0.47 0.94 0.64 0.44 0.68 0.34 0.45 0.02

Mean Score 0.55 0.22 0.58 (2.67) 0.36 0.31 0.71 0.88 0.95 1.12 1.33 1.22 0.95 1.15 0.55
GRAND
0.77 0.74 0.79 0.45 0.64 0.87 0.97 1.08 0.99 0.97 0.94 0.75 0.29 0.67 0.78
MEAN
 157

Applying the yard stick of mean score greater than 2.9 for companies
in safe zone, there are no companies in the safe zone among 41 companies in
nine sectors. A sector wise analysis is given in the following sections.

Regarding the chemical sector, Kerala Minerals & Metals Ltd. with
mean score of 1.30 and Malabar Cements Ltd. with mean score of 1.83 are in
grey Zone having Z-Score value between 1.23 and 2.9. All the other five
companies in this sector are in distress zone. Kerala State Drugs &
Pharmaceuticals Ltd. has the worst performance having a score value of – 0.21
as the mean score.

In Ceramics & Refractories Sector, Kerala Ceramics is in distress

zone and Kerala Clays and Ceramics Ltd. is in grey zone. In the category of
Developmental & Infrastructure Agencies, Kerala State Industrial Enterprises
Ltd. is in grey zone and all others are in distress zone. In Electrical Sector,
Transformers and Electricals Kerala Ltd. is in grey zone all other companies are
in distress zone.

All companies in Electronics are in distress Zone, while one of the

company, Keltron Crystals Ltd., which was having an Z-Score of -0.41 and
another two companies having low value of Z-Sore were closed down during
2008-09 due to high financial distress.

In Engineering & Manufacturing sector, three companies; The Metal

Industries Ltd. with Z-Score of 1.42, Steel and Industrial Forgings Ltd. with Z-
score of 1.64 and Forest Industries (Travancore) Ltd. having Z-Score of 1.26 are
in grey zone. Most worse performing company in this sector is Steel Complex
Ltd. with Z-Score of -1.17. another company, Autokast Ltd. also has negative
value (-0.27) for its Z-Score. All the other four companies in sector are in
Distress Zone.
 158

In Textiles sector, Kerala Garments Ltd. which was having Z-Score

of -0.74 was closed down during 2010-11. Other companies, Kerala State
Textile Corporation Ltd. with Z-Score of 0.30 and Sitaram Textiles Ltd. having
Z-Score of 0.04 are in Distress Zone. All the six companies in Traditional sector
and all the tow companies in Welfare Sectors are in Distress Zone. Kerala
Artisans Development Corporation Ltd. has a comparatively better value for its
Z-Sore (1.08).

Applying the Altman’s score, it can be seen that, there are no

companies in the safe zone having group mean greater than 2.9. Only eight
companies are in grey zone all others are in distress as they are having the group
mean less than 1.23.

4.2.5 Summary of Performance Indicators

Performance of 41 PSUs were analysed using four financial

performance evaluation tools; Net Profit, NPR, ROCE and Altman’s Z-Score
Model. The mean values of each of these financial performance measures for a
period of 14 years is consolidated in Table 4.14.

These figures of four performance indicators give a comprehensive

picture of performance of 41 PSUs. It can be seen that only nine out of 41
companies show all positive values in respect of the four performance measures.
These companies are:
1. The Kerala Minerals and Metals Ltd.,
2. Malabar Cements Ltd.,
3. Kerala Clays and Ceramics Ltd.,
4. Kerala State Industrial Development Corporation Ltd.
5. Kerala State Industrial Enterprises Ltd.,
6. Kerala Industrial Infrastructure Development Corporation Ltd.
 159

Table 4.14 Mean Values of Performance Indicators for 14 Years

Mean Values of Performance
Sl. Indicators
Company
No. Net Altman's
NPR ROCE
Profit Score
CEEMICAL SECTOR
1 The Kerala Minerals and Metals Ltd. 5459.78 12.23 11.02 1.30
(832.29
2 Kerala State Drugs and Pharmaceuticals Ltd. (426.57) (7.27) (0.21)
)
3 Malabar Cements Ltd. 2117.14 7.16 10.55 1.83
4 The Travancore Cements Ltd. (327.90) (12.04) (30.17) 1.01
5 Travancore Cochin Chemicals Ltd. (153.19) (1.57) (1.90) 1.06
6 Travancore Titanium Products Ltd. 45.88 (0.79) (1.70) 0.92
7 Kerala State Minerals Development Corporation Ltd. (12.48) (14.39) (1.27) 0.59
CERAMICS & REFRACTORIES
8 Kerala Ceramics Ltd. (212.42) (68.33) (5.32) (0.07)
9 Kerala Clays and Ceramics Ltd. 116.07 22.29 19.53 1.74
DEVELOPMENT & INFRASTRUCTURE AGENCIES

10 Kerala State Industrial Development Corporation Ltd. 2597.15 81.93 5.32 0.95
11 Kerala State Industrial Enterprises Ltd. 352.13 26.31 20.72 1.31
12 Kerala Small Industries Development Corporation Ltd. (30.00) (1.10) (4.52) 0.95
Kerala Industrial Infrastructure Development
13 1003.75 72.03 2.16 0.73
Corporation
ELECTRICAL INDUSTRIES
14 Kerala Electrical and Alied Engineering Company Ltd. (245.86) (4.66) 0.04 1.00
15 United Electrical Industries Ltd. (247.62) (36.32) (16.88) 0.50
16 Traco Cables Company Ltd. (430.84) (1.44) (1.88) 0.77
17 Transformers and Electricals Kerala Ltd. 1273.79 4.26 11.07 1.66
ELECTRONICS
Kerala State Electronics Development Corporation (1255.73
18 6.10 1.79 0.42
Ltd. )
19 Keltron Electro Ceramics Ltd. (0.41) (4.14) (0.90) 1.00
20 Keltron Component Complex Ltd. (236.90) (7.08) (9.67) 0.65
(222.86
21 Keltron Crystals Ltd (151.94) (11.57) (0.41)
)
22 Keltron Magnetics Ltd (1.81) (5.94) (2.61) 0.53
23 Keltron Resistors Ltd (33.10) 4.12 3.14 0.58
 160

Table 4.14 (Continued)

ENGINEERING AND MANUFACTURING

24 The Metal Industries Ltd. (24.18) (8.88) (1.62) 1.42
25 Steel Complex Ltd. (327.13) (38.38) (39.80) (1.17)
26 Steel Industries Kerala Ltd (157.16) (11.56) (1.50) 0.31
27 Kerala Automobiles Ltd. (268.88) (37.57) 63.80 0.80
28 Steel and Industrial Forgings Ltd. 292.50 6.11 11.07 1.64
29 Autokast Ltd. (403.46) (33.30) 3.50 (0.27)
30 Forest Industries (Travancore) Ltd. 31.69 2.95 5.45 1.26
TEXTILES
31 Kerala Garments Limited (58.82) (2326.59) (34.58) (0.74)
32 Kerala State Textile Corporation Ltd. (661.67) (16.58) (6.95) 0.30
33 Sitaram Textiles Ltd. (166.23) (24.51) (4.86) 0.04
TRADITIONAL INDUSTRIES
34 Foam Mattings (India) Limited (35.19) (6.04) (5.11) 0.68
35 Handicrafts Development Corporation (Kerala) Ltd. (68.87) (15.26) (5.08) 0.38
36 Kerala State Bamboo Corporation Ltd. (192.20) (21.09) (10.57) 0.44
37 Kerala State Handloom Development Corporation Ltd. (446.20) (25.97) (10.73) 0.06
38 Kerala State Coir Corporation Ltd. 42.84 (9.83) (0.42) 0.89
39 Kerala State Cashew Development Corporation Ltd. (1796.29) (70.09) (1.58) (0.05)
WELFARE AGENCIES
40 Kerala Artisans Development Corporation Ltd. (1.73) (10.16) 0.56 1.08
Kerala State Palmyrah Products Dev. & Workers Welfare
41 (5.56) (215.80) (9.08) 0.02
Corporation Ltd.

7. Transformers and Electricals Kerala Ltd.

8. Steel and Industrial Forgings Ltd., and
9. Forest Industries (Travancore) Ltd.

Performance evaluation using different tools is considered to be more

useful. Four performance evaluation tools as given above were used here for the
evaluation of the performance of PSUs in Kerala. Performance evaluation
 161

criteria for each of these at, as understood from the literature survey, is as
follows:
1. Net Profit – If average of net profit is considerably positive, it can
be treated as comparatively good performance.
2. NPR - If mean NPR greater than -1.5, organisation is not
distressed or bankrupt.
3. ROCE - A value between 6 per cent to 14.6 percent is an
acceptable limit.
4. Altman’s Z-Score – A mean of 1.23 to 2.9 is treated as grey zone
and value greater than 2.9 is treated as safe zone.

Out of these nine companies, The Kerala Minerals and Metals Ltd.,
Malabar Cements Ltd., Kerala Clays and Ceramics Ltd., Kerala State Industrial
Enterprises Ltd., Transformers and Electricals Kerala Ltd., and Steel and
Industrial Forgings Ltd. meet the above performance criteria. These six
companies are the only companies having minimum level of performance even
though they are not in safe zone but in grey zone. In the case of other three
companies; Kerala State Industries Development Corporation Ltd. and Forest
Industries (Travancore) Ltd. has ROCE less than 6 per cent. Kerala Industrial
Infrastructure Development Corporation Ltd. has ROCE 2.16 and Altman’s
Score 0.73 which are below the prescribed level of minimum performance.

Seven companies show negative figures in all performance

indicators. These companies are in very adverse performance situation. Other
companies show a mixed pattern with a few positive performance indicators
while in others they fare bad. Again, there are 19 PSUs which have negative
figures in regard to all the first three performance indicators and with low value
in Altman’s Score, which too can turn negative in the nearest future. Again there
are two more PSUs with two negative and two positive performance indicators.
 162

The results of the study on net profit, net profit ratio and return on
capital invested clearly establish that the PSUs in Kerala perform poorly. Most
of the companies are in financial distress zone as per Altman’s ratio. Thus it is
clear that, excepting just a handful, the PSUs of Kerala, under the Department
of Industries are marked for their poor performance and are perched in a
precarious manner. The hand writing is on the wall and the dooms day is fast
approaching. It can be concluded that, in general, the PSUs in Kerala have very
serious performance problems and require revival by some drastic means like
BPR.

4.2.6 Historicity and performance of PSUs

The financial performance analysis conducted above, clearly indicate

that the performance of almost all PSUs are very poor and require drastic
performance improvement steps for survival. Historical evidence also occurred
to lend support to the argument advanced here. The analysis of financial
performance shows that there are three periods with differing performance;
which include 2001-02 to 2005-06, 2005-06 to 2010-11 and 2011-12 to 2014-
15. These three five year periods correspond to three different governments. It
is clear from the industrial analysis that during the second period the graph of
performance has been rising and reached a peak (Figure 4.3). Literature on BPR
makes it clear that top management commitment is the most essential
requirement of any major change in the organization. Here the top management
of PSUs are representatives of the Department of Industries, Government of
Kerala. The Government during the second period did not resort to fund
transfer, to save the languishing PSUs. The details of funds provided to PSUs
by the Department of Industries from 2001 to 2009-10 is presented in Table
4.15.
 163

Table 4.15 Details of Funds Given to PSUs Under the Industries

Department (Rs. Lakhs)
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Particulars
02 03 04 05 06 07 08 09 10
One Time
2332 3982 146 3478 672 1118 2839 2088 1771
Settlement
VRS/SSNP 352 225 57478 2722 3556 1430 959 591 158

Modernization 1273 593 2453 1956

Working
1811 262 2513 608 1104 1480 463 812 1098
Capital
Margin money
700
for restructure
Total 4494 4469 8407 7509 5332 5300 4854 5944 4983

Source: Report Received from RIAB

It can be observed that there is no appreciable difference in funds

given to PSUs between the two periods: viz. (1) 2001-02 to 2005-06, and (2)
2006-07 to 2009-10 and hence funds given to PSUs is not a reason for
improvements in performance. It is argued that revival and forward movement
of loss making firms to become profitable do not hinge upon fund transfer from
government but relies on drastic steps of improvement. The measures adopted
by the then government enabled the stricken PSUs to turn the corner. Elamaram
Kareem, former Minister for Industries, claimed that drastic steps of
improvement adopted by the government that assumed power in 2006 saved the
situation and turned many of the loss- making PSUs into profit- making ones.
These measures include (Kareem 2011):
1. Reorganization of Management with professionally qualified and
experienced persons in key managerial positions,
2. Settlement of dues to banks and other financial institutions,
3. Periodical monitoring of each of the PSUs by senior government
agencies including Minister for Industries,
 164

4. Giving budgetary support to PSUs - Effective annual budgeting, Auditing

of accounts, Mutual support and cooperation of various agencies and
departments of government,
5. Strategic tie-ups with Central PSUs,
6. Merging and amalgamating companies of similar lines of production, Re-
opening of closed units and regaining of assets,
7. Employee oriented measures like: Fresh Recruitment, Wage Revision,
Workers’ representation in the Board of Management, and
8. Expansion, Modernization and implementation of New Projects.

These steps indicate a scientific approach that led to better

performance on the production and profitability fronts. The same logic enables
the argument that PSUs of Kerala can work profitably, if effective steps are
taken to operate them on a professional manner. This justifies the present study
on performance measurement and improvement.

The next step in this study is to find out extent of possible

improvement in the performance. The factors of performance improvement
were identified as given in "Methodology". The result of this study is discussed
in the next section.

4.3 ANALYSIS ON POSSIBLE PERFORMANCE

IMPROVEMENTS (PPI) IN PSUS OF KERALA

In the next step, the possibility of performance improvement was

examined. 12 performance improvement factors were identified through
literature survey and by the preliminary study. A questionnaire (Questionnaire
A 3.1 in Appendix 3) having 83 domains pertaining to the 12 factors was
developed. Table A 3.1 provides the distribution of the domains (questions)
among the 12 performance factors. The questionnaire was administered among
the executives of various levels. The opinion of executives about the PPIs in
 165

these 83 domains are given in Appendix 5. Companies selected for the study of
the level of PPI are given below. The rationale for selection of the units are
provided in Chapter 3.

1. Keltron Component Complex Ltd.

2. Keltron Electro Ceramics Ltd.
3. Kerala State Electronics Development Corporation Ltd.
4. Kerala Automobiles Ltd.
5. Kerala Ceramics Ltd.
6. United Electrical Industries Ltd.

Table 4.16 gives a summary of the opinion of the executives about

the level of PPIs in the SPSUs of Kerala.

Table 4.16 Estimate of PPI in SPSUs of Kerala

SPSUs
Factors
Std. Improvement
Mean
Deviation (%)
Cost 3.03 0.79 50.67
Quality 3.11 0.69 52.24
Time 3.22 0.79 54.49
Delivery 3.27 0.80 55.47
Flexibility 3.20 0.82 53.93
Growth 4.02 0.68 70.38
Service 4.04 0.68 70.86
HR 3.85 0.69 67.03
Trade Union 2.68 1.15 43.52
IT 3.50 0.84 59.90
Political 3.72 0.66 64.48
Obsolescence 3.36 0.79 57.24
Grand Mean 3.42 58.35
 166

The mean values of PPI and their corresponding percent

improvement are given in columns 2 and 4 respectively. The mean values range
from 2.68 to 4.04 and the corresponding percentage values are 43.52 and 70.86;
the grand mean is 3.42, which is 58.35 per cent. The PPI corresponding to mean
3.03 is calculated as: 50+ (3.03-3) * 20 = 50.67.

The level of PPI in SPSUs of Kerala as per the norms proposed by

Jarrar & Aspinwall (1999) is presented in Table 4.17. Accordingly, if the
improvement is more than 60 per cent it is drastic, 30 to 60 per cent
improvement is treated as major.

Table 4.17 Level of PPI in SPSUs of Kerala

Factors Improvement (%) Possible Level

Service 70.86
Growth 70.38
Drastic
HR 67.03
Political 64.48
IT 59.90
Obsolescence 57.24
Delivery 55.47
Time 54.49
Major
Flexibility 53.93
Quality 52.24
Cost 50.67
Trade Union 43.52

In the case of SPSUs in Kerala, it is seen from the Table 4.18 that
Service, Growth, HR and political factors have possibility of drastic
performance improvements with the corresponding PPI of; 70.86, 70.38, 67.03
 167

and 64.48 per cent. All other factors have major performance improvement
possibilities. The modern performance evaluation technique, viz. Balance Score
Card (BSC) proposes ‘Growth and Innovation’ as one of the major factors for
performance improvement. The result obtained in this study indicates that there
is much scope for ‘Innovation and Modernization’ in PSUs of Kerala. This
corresponds to the results of the preliminary study conducted in selected PSUs
in Kerala which shows that some organizations make use of obsolete technology
producing shoddy products.

The present study is also comparable to previous BPR studies (Thong

et al. 2000; Paper et al. 2001, etc.). In the case study (Thong et al. 2000) in
Housing Development Corporation the individual improvements were
minimum 34 per cent in general administration to maximum 87 per cent in
customer service with an average of 62.4 percent taking all individual factors.
In the study by Paper et al. (2001), improvement was minimum 46 per cent in
inventory investment, reduction in customer lead time 70 percent and 72 per
cent reduction in cycle time. In the present study the minimum PPI is 46 percent
in Trade Union, maximum 70.86 in service. Taking all factors of performance
together, an average 58.35 per cent improvement is possible in 12 factors. It
assures that there is lot of scope for BPR in PSUs of Kerala which leads to
fundamental restructuring the organization and redesigning the technology and
product. The relationship among various factors of performance improvement
can be explained to some extend by analysing the correlation between these
variables.

4.3.1 Correlation between Factors of PPI

The correlation between various factors of PPI of selected PSUs in

Kerala is given in Table 4.18.
 168

Table 4.18 Pearson Correlations between Factors of Improvements

Trade
Factors Cost Quality Time Delivery Flexibility Growth Service HR IT Political Obsolescence
Union
Cost 1 .812** .886** .834** .566** .449** .409** .565** .595** .561** .579** .481**

Quality 1 .771** .732** .542** .524** .525** .702** .519** .641** .678** .456**

Time 1 .861** .510** .413** .312* .452** .535** .406** .458** .360**

Delivery 1 .440** .520** .294* .451** .552** .452** .430** .402**

Flexibility 1 .444** .349** .514** .637** .527** .481** .589**

Growth 1 .410** .567** .462** .409** .489** .505**

Service 1 .686** .208 .629** .718** .463**

HR 1 .500** .674** .735** .549**

Trade Union 1 .382** .395** .478**

IT 1 .675** .600**

Political 1 .584**

Obsolescence 1
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
 Table 4.18 shows the correlation coefficients between factors of
performance improvements in PSUs. The correlation coefficient between Cost
and Quality is found to be 0.812. The Table, similarly, gives the correlation of all
other factors. It is seen that all the factors have high or moderate correlation
between each other. It means that the possibility of performance improvements
goes together. For example, the correlation between Time and Cost is 0.886. If
we reduce Time, Cost will automatically come down. It can also be seen that
improvement due to ‘Political’ and that of ‘Trade Union’ has a correlation of only
0.395 which shows that the correlation between these factors is low compared to
others. It is seen that no pairs have a correlation above 0.9 which shows that no
factor can be eliminated. All the correlation estimates, except that between ‘Trade
Union’ and ‘Service’ are significant either at 0.05 or at 0.01. High significant
correlation is an indication that the performance improvement in one factor
depends and also contributes to performance improvement in other factors. This
is a real life situation with high practical validity, especially so in the context of
the present study aimed at finding scope of implementation of drastic
performance improvement technique - BPR.

Due to multi-collinearity, it is difficult to estimate the exact figure of

total PPI in the organisation even with PPI in each factor of performance. Adding
individual PPI will make total PPI at 748.13 per cent. This is an inflated figure as
the12 factors are not independent. Accurate mathematical assessment of the total
from these individual factors is beyond the scope of this work. Approximate
figures can be assessed using triangulation, using knowledge from other sources.
This is sufficient for the present study as it is intended to assess the scope of BPR
implementation. Allison (1999) pointed out that when the direction of causation
cannot be inferred from data, the decision has to be based on the researcher’s
knowledge of the subject grounded in theory. The researcher with 24 years’
experience in typical PSU of Kerala and having contacts with many others can
vouch for high PPI in almost all factors. Facts collected from interview with
 170

executives of selected PSUs confirm this claim. It is seen that in some

organizations, for example automobile company, production turnover is only
about one-fifth of the possible installed capacity and previously achieved
production figures. The case of other PSUs is not much different. The average
monthly production in a PSU, where the researcher had been working for 24
years, is only about one fourth compared to the production in the month of March
- the end of the financial year. So there is much scope of improvements with
scientific management. If restructuring is done using the managerial techniques,
there is enough scope for fundamental and drastic improvement in PSUs of
Kerala. Put it alternatively there is high scope for implementation of BPR.

4.3.2 PPI in SPSUs and CPSUs of Kerala –a Comparison

Possibility of performance improvements in selected Central PSUs in

Kerala is given in Table 4.19.

Table 4.19 PPI in CPSUs of Kerala

CPSUs
Factors Improvement
Mean Std. Deviation
(%)
Cost 3.02 0.73 50.44
Quality 3.01 0.65 50.17
Time 3.12 0.73 52.42
Delivery 3.20 0.71 53.98
Flexibility 3.12 0.75 52.35
Growth 3.61 0.75 62.12
Service 3.61 0.97 62.12
HR 3.68 0.87 63.58
Trade Union 3.06 0.85 51.21
IT 3.32 0.91 56.46
Political 3.41 0.81 58.18
Obsolescence 2.84 0.95 46.77
Grand Mean 3.25 54.98
 171

It is seen that the mean value of performance improvements in various

factors for the Central PSUs in Kerala varies from 2.84 in the case of
‘Obsolescence’ and 3.68 in the factor ‘HR’. The grand mean is 3.25 which
correspond to about 54.98 per cent improvements in each factor of performance.
Comparative figures of PPI in State and Central PSUs in Kerala are given in Table
4.20.

Table 4.20 Comparison of PPI in State and Central PSUs in Kerala

State PSUs Central PSUs

Factors Improv
Std. Improvement Mea Std.
Mean ement
Deviation (%) n Deviation
(%)
Cost 3.03 0.79 50.67 3.02 0.73 50.44

3.11 0.69 52.24 3.01 0.65 50.17

Quality

Time 3.22 0.79 54.49 3.12 0.73 52.42

3.27 0.80 55.47 3.20 0.71 53.98

Delivery

Flexibility 3.20 0.82 53.93 3.12 0.75 52.35

4.02 0.68 70.38 3.61 0.75 62.12

Growth

Service 4.04 0.68 70.86 3.61 0.97 62.12

3.85 0.69 67.03 3.68 0.87 63.58

HR

Trade Union 2.68 1.15 43.52 3.06 0.85 51.21

3.50 0.84 59.90 3.32 0.91 56.46

IT
3.72 0.66 64.48 3.41 0.81 58.18
Political
3.36 0.79 57.24 2.84 0.95 46.77
Obsolescence
Grand 3.42 58.35 3.25 54.98
Mean

The average possible improvements in SPSUs are 3.42 and that of

CPSUs are 3.25. The corresponding per cent are 58.35 and 54.98.
 172

4.3.3 Testing of Hypothesis

The hypothesizes were tested and the results are provided in the following
sections:

Hypothesis 1: There is scope for over 50 per cent Possible Performance

Improvement (PPI), for each domain demanding improvement in the PSUs of
Kerala.
H1a: PPI in PSUs is greater than 50 per cent.

50 per cent improvement corresponds to the value 3 in the Mean value

(Table 4.20). Hence the t-test is conducted to know whether there is any
significant difference between mean value 3 and corresponding value in the
collected for each factors of PPI. The hypothesis was tested with one sample t-
test at a confidence level of 95 per cent. The result obtained in the case of SPSUs
is presented in Table 4.21.

Table 4.21 t-test of PPI in SPSUs

Factors of PPI N Mean t Sig. (2-tailed)

Cost 35 3.03 0.25 0.804

Quality 35 3.11 0.96 0.343
Time 35 3.22 1.68 0.102
Delivery 35 3.27 2.03 0.051
Flexibility 35 3.20 1.42 0.164
Growth 35 4.02 8.92 0.000
Service 35 4.04 9.08 0.000
Trade Union 35 2.68 -1.66 0.106
IT 35 3.50 3.48 0.001
Political 35 3.72 6.51 0.000
Obsolescence 35 3.36 2.71 0.010
 173

The assumed mean of PPI is 3.00 (corresponds to 50 per cent). It can

be seen that PPI of Growth, Service, IT, Political and Obsolescence are
significantly different from 50 per cent on the higher side. In all the other factors
there is no significant difference from 50 per cent PPI. It means that the per cent
improvement in each factors of PPI are 50 per cent and more. Therefore,
hypothesis 1 that “there is scope for 50 per cent or more performance
improvements in respect of each domains demanding improvement in SPSUs of
Kerala” is accepted.

The same test is conducted for CPSUs and results are given in Table
4.22.

Table 4.22 t-test of PPI in CPSUs

Factors of PPI N Mean t value Sig. (2-tailed)

Cost 33 3.02 0.17 0.865

Quality 33 3.01 0.08 0.939
Time 33 3.12 0.95 0.349
Delivery 33 3.20 1.60 0.119
Flexibility 33 3.12 0.90 0.376
Growth 33 3.61 4.66 0.000
Service 33 3.61 3.60 0.001
Trade Union 33 3.06 0.41 0.685
IT 33 3.32 2.05 0.049
Political 33 3.41 2.91 0.006
Obsolescence 33 2.84 -0.97 0.338

CPSUs also show similar results as in the case of SPSUs except in the
case of Obsolescence. PPI of Growth, Service, IT, and Political are significantly
different from 50 per cent on the higher side. But in the case of improvement in
Obsolescence, it is not significantly different from 50 per cent. This result shows
 174

that PPI in respect of Obsolescence is less in CPSUs compared to SPSUs but still
has PPI of about 50 per cent.

Hypothesis 2: The PPIs of SPSUs is greater than that of CPSUs in Kerala.

H2a: PPI in SPSUs is greater than PPI in CPSUs

Hypothesis 2 is tested using independent sample t-test. The result is

given in Table 4.23. It is found that there is no significant difference in PPI
between SPSUs and CPSUs except in case of improvement in ‘Service’ and
‘Trade Union’. PPI in Service factor is more in SPSUs compared to CPSUs. But
PPI in respect of ‘Trade Union’ is more in CPSUs than in SPSUs.

From the above results, it can be inferred that there is much scope for
improvement in performance by adopting modern managerial techniques of BPR
both in State and Central PSUs. It is assumed that PPI in PSUs incurring loss are
more than that of comparatively profitable PSUs. This assumption is tested using
independent sample t-test in the case of SPSUs and CPSUs.
 175

Table 4.23 Independent Samples t- test for comparison of PPI in SPSUs

and CPSUs

t- Sig. (2
Factor PSU Type N Mean
value tailed)
SPSU 35 3.03
Cost 0.06 0.686
CPSU 33 3.02
SPSU 35 3.11
Quality 0.64 0.811
CPSU 33 3.01
SPSU 35 3.22
Time 0.56 0.620
CPSU 33 3.12
SPSU 35 3.27
Delivery 0.41 0.507
CPSU 33 3.2
SPSU 35 3.2
Flexibility 0.42 0.434
CPSU 33 3.12
SPSU 35 4.02
Growth 2.38 0.419
CPSU 33 3.61
SPSU 35 4.04
Service 2.14 0.015
CPSU 33 3.61
SPSU 35 3.85
HR 0.9 0.322
CPSU 33 3.68
SPSU 35 2.68
Trade Union -1.57 0.023
CPSU 33 3.06
SPSU 35 3.5
IT 0.81 0.739
CPSU 33 3.32
SPSU 35 3.72
Political 1.76 0.180
CPSU 33 3.41
SPSU 35 3.36
Obsolescence 2.46 0.357
CPSU 33 2.84

Hypothesis 3: The PPI of loss incurring PSUs are more than profit making PSUs.
H3a: PPI in Loss Incurring PSUs is greater than Profit Making PSUs.

Independent sample t-test was conducted to test this hypothesis. One

of the SPSUs making profit for the last seven years, Kerala State Electronics
 176

Development Corporation is selected as a representative of profit making unit and

Kerala Ceramics Ltd. which incurred loss for 12 years out of last 14 years is
selected as loss incurring unit. The result of the test is given in Table 4.24.

Table 4.24 t- test on PPI of Profit Making and Loss Incurring SPSUs

Sig. (2-
PPI Factor Type Mean t
tailed)
Making Profit 3
Cost 0.32 0.774
Incurring Loss 2.81
Making Profit 3.02
Quality -0.141 0.9
Incurring Loss 3.12
Making Profit 3.05
Time -0.752 0.518
Incurring Loss 3.57
Making Profit 3.43
Delivery 0.373 0.728
Incurring Loss 3.1
Making Profit 2.96
Flexibility 0.507 0.655
Incurring Loss 2.71
Making Profit 4.33
Growth 0.164 0.878
Incurring Loss 4.22
Making Profit 3.83
Service -1.265 0.285
Incurring Loss 4.5
Making Profit 3.8
HR 0.419 0.697
Incurring Loss 3.53
Making Profit 3.44
Trade Union 1.554 0.199
Incurring Loss 2
Making Profit 4.11
IT 2.91 0.059
Incurring Loss 2.78
Making Profit 4.11
Political 1.15 0.315
Incurring Loss 3.11
Making Profit 3.67
Obsolescence -0.555 0.628
Incurring Loss 3.89
 177

The result shows that there is no significant difference in PPI between

profit making and loss incurring SPSUs.

The same hypothesis is again tested for profit making and loss
incurring CPSUs. HLL is a profit making unit and HMT is a loss incurring unit.
The test is conducted on these two units and the result is given in Table 4.25.

Table 4.25 t- test on PPI of Profit Making and Loss Incurring CPSUs

PPI Factor Type Mean t Sig. (2-tailed)

Making Profit 2.68
Cost -1.96 .063
Incurring Loss 3.17
Making Profit 2.62
Quality -2.43 .026
Incurring Loss 3.18
Making Profit 2.87
Time -1.41 .174
Incurring Loss 3.23
Making Profit 2.99
Delivery -1.11 .282
Incurring Loss 3.29
Making Profit 2.99
Flexibility -0.62 .546
Incurring Loss 3.17
Making Profit 3.50
Growth -0.52 .607
Incurring Loss 3.65
Making Profit 3.20
Service -1.45 .168
Incurring Loss 3.78
Making Profit 3.02
HR -2.93 .011
Incurring Loss 3.97
Making Profit 2.73
Trade Union -1.76 .089
Incurring Loss 3.20
Making Profit 3.83
IT 2.91 .007
Incurring Loss 3.10
Making Profit 2.93
Political -2.19 .046
Incurring Loss 3.62
Making Profit 2.27
Obsolescence -2.28 .038
Incurring Loss 3.09
 178

The mean PPI of loss incurring units are more than that of profit
making units except in IT factor. There is significant difference in PPI of profit
making and loss incurring unit in factors. There is also significant difference in
PPI between Loss incurring and profit making CPSUs in factors like Quality, HR,
IT, Political and Obsolescence. The difference is not significant in the case of
other factors. It can be interpreted that PPI for loss incurring CPSUs are more
than or equal to that of profit making CPSUs.

4.4 ANALYSIS OF READINESS FOR CHANGE IN PSUS OF

KERALA

Having established the need and scope for implementation of BPR in

PSUs in Kerala, the next logical step is to assess the readiness for change of
employees at various levels. It is attempted in this section. This stage of study
makes an assessment of the readiness/resistance to change of employees of
SPSUs, a comparison of readiness between executives and workers of SPSUs, a
comparison of readiness between employees of SPSUs and CPSUs, and between
employees of Public Sector Undertakings (PSUs) making profits and incurring
loss.

The factors affecting readiness to change were identified from

literature survey and through studies conducted in various organizations.
Abdolvand et al. (2008) have given a graphic presentation of the success and
failure factors of BPR implementation (Figure 2.1). The BPR Success Factors, to
them are: Egalitarian leadership, Collaborative working environment, Top
management commitment and Sponsorship, Change in management systems and
Use of Information Technology. There are 19 sub-factors in these five Success
factors. Resistance to change explains the failure factor which include; Middle
management fear of losing authority, Employee fear of losing job, Scepticism
about project result, and Feeling uncomfortable with new working environment.
Analysing the present situation, the five critical success factors (with 19 sub
 179

factors) and the resistance factors (with 4 sub factors) given by Abdolvand et al.
(2008) have been found to be extremely relevant and useful in the present context
of research for measuring the readiness of employees of PUSs in Kerala. On
account of the difference in the cultural context of the original and present studies;
expert opinions were collected, a pilot study and the test of reliability using
Cronbach’s was conducted for ensuring reliability to this questionnaire. The test
of reliability using Cronbach’s Alpha revealed a score of 0.88, denoting high
reliability for the tool in this present context. In the original study (Abdolvand et
al. 2008) based on which the present questionnaire is developed; the Cronbach’s
Alpha was 0.76.

Five Readiness factors of change with their respective sub factors and
the resistance factor along with its sub factors was given in Table 3.3 of Chapter
3. Questionnaire is given in Table A 4.1 in Appendix 4.

Likert type ordinal scale is used in measuring the level of readiness of

employees under five readiness factors. The options given to particular questions
are: (a) always, (b) more, (c) moderately, (d) less and (e) never with values 5, 4,
3, 2 and 1 respectively, assuming an equal interval between choices. With regard
to the resistance factors the options measure their worry towards change.

4.4.1 Readiness to change in SPSUs

Study on readiness to change of employees of SPSUs were done using

the above mentioned questionnaire. Readiness to change of two categories of
employees are assessed and a comparison is also made between the readiness to
change of executive and workers. The result of the study of Readiness to
change/Resistance to change of Executives and Workers of SPSUs in Kerala are
given in Table 4. 26.
 180

Table 4.26 Readiness to Change of Executives and Workers of SPSUs

Executives (35) Workers (147)
Number of Respondents (N)
Factor Factor
Mean S. D Mean S. D
Mean Mean
A. Egalitarian leadership
1- Shared vision/ information 3.97 0.95 2.87 1.42
2- Open communication 4.11 0.83 2.80 1.33
3- Confidence & trust in 3.91 3.95 0.78 3.12 2.89 1.29
subordinates
4- Constructive use of 3.80 0.72 2.78 1.32
subordinates' idea
B. Collaborative working
environment
1- Friendly interactions 3.91 0.89 3.30 1.35
2- Confidence & trust 4.03 0.92 3.13 1.35
3- Teamwork performance 4.57 0.56 3.44 1.80
4.04 3.19
4- Cooperative environment 4.06 0.87 3.22 1.35
5- Recognition among 3.63 0.84 2.87 1.38
employees
C. Top Management
Commitment
1- Sufficient knowledge about 3.97 0.79 3.20 1.41
the projects
2- Realistic expectation of results 3.91 3.99 0.78 3.22 3.23 1.57
3- Frequent communication with 4.09 0.82 3.27 1.41
project team and users
D. Change in Management
Systems
1- Good reward system 3.40 0.88 2.93 1.51
2- Performance measurement 3.46 0.85 3.01 1.48
3.32 3.00
3- Employee empowerment 3.23 0.88 3.01 1.44
4- Timely training & education 3.20 0.80 3.04 1.45
E. Use of Information Technology
1- The role of IT 3.46 0.95 3.31 1.40
2- Use of up-to-date 3.46 0.85 3.44 1.45
3.50 3.44
communication technology
3- Adoption of IT 3.57 0.95 3.58 1.58
Readiness to Change Mean 3.76 3.15
 181

Table 4.26 (Continued)

Executives (35) Workers (147)
Number of Respondents (N) Factor Factor
Mean S. D Mean S. D
Mean Mean
F. Resistance to change
1- Middle management fear of 3.03 0.98 2.79 1.58
losing authority
2- Employees fear of losing 2.74 1.04 2.62 1.67
job
3- Skepticism about project 2.74 2.81 0.78 2.80 2.72 1.52
result
4- Feeling uncomfortable with 2.71 0.99 2.68 1.58
new working environment
Resistance to change Mean 2.81 2.72

According to the system given above, the mean value of each group
provides the extent of readiness in that factor; a value greater than 3 shows that
readiness to change is more than moderate. The group mean of the readiness to
change for executives is 3.76 and that of workers is 3.15, which shows that both
groups are favourably disposed to change. It also gives us a comparison of
readiness. Therefore, it can be stated that the executives exhibit the highest degree
of readiness in respect of 'collaborative working environment' (4.04), followed
by 'top management commitment' (3.99) and 'egalitarian leadership' (3.95).
Similarly, the mean values against each readiness factor in respect of the workers
tell us the area in which they are more or less ready to change. Coming to
resistance, the values are 2.81 and 2.72 respectively for executives and workers,
showing that both groups are less resistant to change.

4.4.1.1 Comparison of Readiness to Change between Executives and

Workers of SPSUs

To compare the Readiness to change between Executives and Workers

of SPSUs, independent sample t-test was conducted on the following Hypothesis
and the result is given in Table 4.7.
 182

Hypothesis 4: Executives have higher readiness to change than that of workers

H40: Readiness to change of Executives is equal to workers

Table 4.27 t-test of Readiness to Change of Executives and Workers of

SPSUs

Employee Sig.
Readiness Factors Mean t-value
Grade (2-tailed)
Executives 3.95
Egalitarian leadership 7.37 .000
Workers 2.89
Collaborative working Executives 4.04
5.81 .000
environment Workers 3.19
Top management Executives 3.99
5.01 .000
commitment Workers 3.23
Change in management Executives 3.32
2.13 .036
systems Workers 3.00
Use of Information Executives 3.50
0.31 .755
Technology Workers 3.44
Executives 2.81
Resistance to change 0.50 .616
Workers 2.72
Readiness to Change Executives 3.76
4.79 .000
Workers 3.15

Table 4.27 presents the results of t-test comparing the mean values of
readiness to change of Executives and Workers of SPSUs. In the case of
'egalitarian leadership', 'collaborative working environment', 'top management
commitment', ‘change in management system’, there is significant difference
between executives and workers. On the other hand, in the case of 'use of
information technology' there is no significant difference between the two
categories. Also there is no significant difference in overall resistance to factor
between two categories. In the case of overall readiness, there is significant
difference between executives and workers even at 99 per cent confidence,
clearly indicating that executives show greater readiness to change than workers.
From the values it can be clearly understood that readiness values are higher for
 183

executives than that of workers. The t-test established that this difference is
significant. Hence it can be interpreted that executives have more readiness for
change in SPSUs of Kerala.

4.4.2 Readiness to change of SPSUs and CPSUs

Readiness to change of employees of SPSUs and CPSUs are given in

Table 4.28.

Table 4.28 Readiness to Change of SPSUs and CPSUs in Kerala

Public Sector Category SPSU (182) CPSU (68)

Readiness Factors/Domains Mean S.D Mean S.D
A. Egalitarian leadership
1- Shared vision/ information 3.08 1.41 2.94 1.36
2- Open communication 3.05 1.35 3.01 1.31
3- Confidence & trust in subordinates 3.27 1.25 3.01 1.23
4- Constructive use of subordinates' idea 2.97 1.29 3.00 1.12
Mean 3.09 1.09 2.99 1.16
B. Collaborative working environment
1- Friendly interactions 3.42 1.30 2.91 1.36
2- Confidence & trust 3.30 1.33 2.84 1.39
3- Teamwork performance 3.66 1.70 3.22 1.64
4- Cooperative environment 3.38 1.31 2.96 1.34
5- Recognition among employees 3.02 1.33 2.85 1.18
Mean 3.36 1.09 2.96 1.28
C. Top Management Commitment
1- Sufficient knowledge about the projects 3.35 1.35 2.78 1.34
2- Realistic expectation of results 3.35 1.48 2.82 1.39
3- Frequent communication with project team
3.42 1.36 3.07 1.12
and users
Mean 3.38 1.15 2.89 1.19
 184

Table 4.28 (Continued)

Public Sector Category SPSU (182) CPSU (68)
Readiness Factors/Domains Mean S.D Mean S.D
D. Change in Management Systems
1- Good reward system 3.02 1.42 2.76 1.04
2- Performance measurement 3.09 1.39 2.78 1.10
3- Employee empowerment 3.05 1.35 2.62 1.04
4- Timely training & education 3.07 1.35 2.76 1.16
Mean 3.06 1.11 2.73 0.92
E. Use of Information Technology
1- The role of IT 3.34 1.33 2.71 1.28
2- Use of up-to-date communication
3.44 1.36 2.57 1.20
technology
3- Adoption of IT 3.58 1.48 2.76 1.24
Mean 3.45 1.20 2.68 1.13
Readiness Grand Mean 3.27 0.88 2.85 1.04
E. Resistance to change
1- Middle management fear of losing authority 2.84 1.49 3.32 1.18
2- Employees fear of losing job 2.64 1.57 3.24 1.37
3- Skepticism about project result 2.79 1.41 3.25 1.10
4- Feeling uncomfortable with new working
2.69 1.49 3.37 1.18
environment
Resistance Mean 2.74 1.13 3.29 1.04

A comparative analysis on factors of willingness to change between

employees of State and Central PSUs was done using the following Hypothesis
and the results are analysed.

Hypothesis 5: Readiness to Change of employees of SPSUs is greater than that

of CPSUs.
H50: Readiness to change of employees of SPSUs is equal to Readiness to change
of employees of CPSUs
 185

The result of independent sample t-test is given in Table 4.29.

Table 4.29 t-test on Factors of Readiness to change in SPSUs and CPSUs

in Kerala

Public
t- Sig.(2-
Readiness Factors Sector Mean
value tailed)
Category

Egalitarian SPSU 3.09

0.63 0.532
leadership CPSU 2.99
Collaborative SPSU 3.36
working 2.28 0.024
environment CPSU 2.96

Top management SPSU 3.38

2.88 0.005
commitment CPSU 2.89
Change in SPSU 3.06
management 2.36 0.020
systems CPSU 2.73

Use of Information SPSU 3.45

4.71 0.000
Technology CPSU 2.68

Resistance to SPSU 2.74

-3.66 0.000
change CPSU 3.29

SPSU 3.27
Readiness Average 0.63 0.004
CPSU 2.85

From Table 4.29, it can be seen that, between SPSUs and CPSUs there
is no significant difference in readiness in the factor 'egalitarian leadership', but
there is significant difference in other readiness factors. It is seen that the mean
values of all readiness factors are more in SPSUs than in CPSUs. Further it is
seen that in the case of resistance to change in the SPSUs is found to be on the
lower side, indicating that implementation BPR has greater scope in SPSUs.
 186

The overall readiness to change among employees of SPSUs is higher

than that of CPSUs in Kerala, with values respectively of 3.27 and 2.85 and is
found significant by the t- test. In the case of resistance to change, the SPSUs
have a moderate value of 2.74, whereas that of CPSUs is 3.29 indicating less
willingness to change. This finding is also supported by the t-test. In short,
employees of SPSUs are more inclined to change than that of CPSUs.

4.4.3 Comparison of Readiness to Change of PSUs Making Profits and

Those Incurring loss

The difference in readiness to change between PSUs Making Profit

and those Incurring Continuous Loss are tested on the following Hypothesis using
independent sample t-test.

Hypothesis 6: Readiness to change of employees in PSUs incurring loss is greater

than that of employees of PSUs making profit
H60: Readiness to change of employees of PSUs Incurring Loss is equal to
Readiness to change of employees of PSUs Making Profit

This test was done for SPSUs as well as CPSUS and results are given
in the following sections.

4.4.3.1 Readiness to Change of SPSUs Making Profits and Incurring

Loss

To analyse the readiness of employees in SPSUs making profits and

those incurring loss, one of the SPSUs from Electronic Sector, which was running
at profit for past few years and one of the SPSUs from Ceramics Sector which
was running at loss for almost all years in study period are selected. The result of
t-test is given in Table 4.30.
 187

Table 4.30 t-test on Readiness Change of SPSUs Making Profits and

Incurring Loss
Profit t-value Sig. (2-
Readiness Factor Mean
Type tailed)
Profitable 2.9271
Egalitarian leadership -0.22 .825
Non
2.9914
Profitable
Profitable 3.7167
Collaborative working 7.97
Non .000
environment 2.1241
Profitable
Profitable 3.0972
Top management -0.38
Non .704
commitment 3.2184
Profitable
Profitable 2.3646
Change in -3.98
Non .000
management systems 3.4741
Profitable
Profitable 3.0000
Use of Information -2.04
Non .047
Technology 3.7241
Profitable
Profitable 2.6042
Resistance to change -0.50 .616
Non
2.7586
Profitable
Profitable 3.0211
Readiness Mean -0.38 .704
Non
3.1064
Profitable

Only in 'collaborative working environment' and 'change in

management systems' significant difference is shown between profit making and
loss incurring SPSUs. The difference in readiness to change is not significant in
any other factor. This result shows that in almost all SPSUs, readiness to change
is positive. Therefore, it is proved that employees in all SPSUs welcome change.

4.4.3.2 Readiness to Change of CPSUs Making Profits and Incurring

Loss

A comparative analysis of the readiness to change of employees of

CPSUs making profits and incurring loss is given in Table 4.31.
 188

Table 4.31 Readiness to change of CPSUs Making Profit and Incurring

Loss
CPSU Making CPSU Incurring
Company Name Profit - HLL Loss- HMT
(N=33) (N=35)
Factor Factor
Factor SD SD
Mean Mean

A. Egalitarian leadership 2.35 1.20 3.60 0.74

B. Collaborative working
2.12 1.18 3.75 0.77
environment

C. Top Management Commitment 2.43 1.41 3.32 0.73

D. Change in Management
2.33 0.98 3.11 0.68
Systems

E. Use of Information Technology 2.23 1.22 3.10 0.86

F. Resistance to change 3.76 1.10 2.86 0.77

Readiness to Change Mean 2.29 1.12 3.38 0.59

From the Table 4.31 it is seen that readiness to change is low (2.29) in
the case of employees of CPSU making profit - Health Care Company (HCC),
compared to (3.38) that of CPSU incurring loss viz. Machine Tools Company
(MTC). Likewise, resistance to change is more (3.76) for CPSU making profit
than that of CPSU incurring loss (2.86). It is found that employees of CPSU
incurring loss are more in favour of initiating change than employees of CPSU
making profit. And in the case of resistance to change, employees of CPSU
incurring loss are less resistant.

It can be seen that there is difference in readiness to change between

employees of profit making SPSUs and loss incurring SPSUS. Higher values are
seen in the case of the unit which are incurring loss than the unit making
reasonable profits for last few years. The significance is tested using independent
sample t-test. The result of the t-test given in Table 4.32.
 189

Table 4.32 t-test on Readiness to Change of CPSU Making Profit and

Incurring Loss

Sig. (2-
Readiness Factors Profit Type Mean t-value
tailed)
Profitable 2.35
Egalitarian leadership Non -5.157 .000
3.60
Profitable
Profitable 2.12
Collaborative working
Non -6.707 .000
environment 3.75
Profitable
Profitable 2.43
Top management
Non -3.233 .002
commitment 3.32
Profitable
Profitable 2.33
Change in
Non -3.755 .000
management systems 3.11
Profitable
Profitable 2.23
Use of Information
Non -3.392 .001
Technology 3.10
Profitable
Profitable 3.76
Resistance to change Non 3.885 .000
2.86
Profitable
Profitable 2.29
Readiness Mean Non -4.940 .000
3.38
Profitable

From the result of the t-test, it is seen that there is significant difference
in readiness to change and resistance to change between profit making CPSU and
loss incurring CPSUs. Readiness to change is more and resistance to change is
less in non-profitable than that of profitable CPSU. Hence it can be inferred that
non-profitable organization is more favourable to change and less resistance to
change.

4.4.4 Results of Analysis of Readiness to Change

The study aimed at identifying the scope for implementing change in

PSUs of Kerala. From the performance evaluation, it is found that most of the
 190

SPSUs are poor performers and require change for survival. Organizational
readiness for change is influenced by individual readiness for change (Armenakis
et al. 1993). Supervisors’ perceptions of their own readiness for change and their
perceptions of the organization’s readiness for change are highly related (Kling
2003). In the present study overall readiness for change of executives is 3.76 and
that of workers is 3.25 indicating high readiness of employees for change.
Standard deviation of the readiness for workers is more than that of executives
which shows that there are more variations in opinion of workers than that of
executives. From Table 4.27, it is seen that there is no significant difference in
readiness to change between executives and workers in certain factors, whereas
in certain other factors and in total of readiness to change there are significant
differences. The p-value of 0.00068, which is significant, in t-test shows that the
overall readiness to change of executives is more than that of workers. Readiness
for change of executives and workers are good and the figures of executives are
comparatively more than that of workers. The argument that readiness for change
is significantly related to managerial commitment is supported by Al-Abrrow &
Abrishamkar (2013), Madsen et al. (2006), Shah & Shah (2010) and Cinite
(2006). The evidences thus point towards better scope for change in the PSUs in
Kerala.

An attempt was made to compare the readiness / resistance of the

employees of the SPSUs with CPSUs in Kerala, and it is found that there is
significant difference in the readiness and resistance to change of the employees.
It is also found that readiness to change of employees of SPSUs is better than that
of CPSUs, and resistance is less in SPSUs.

A comparison of the readiness / resistance of the employees of SPSUs

and CPSUs making profits and loss was also attempted. In the case of SPSUs
there is no significant difference in readiness and resistance, whereas in the case
of CPSUs there is significant difference in readiness and resistance to change
 191

between those making profits and those making profits. The employees of the
CPSU incurring loss are observed to be more ready for change than that of CPSU
making profits. These facts establish that there is good scope for implementing
change in SPSUs in Kerala.
 192

CHAPTER 5

FINDINGS, SUGGESTIONS AND CONCLUSION

Indian economy owes much to investment of Government authorities,

both at the central and state levels, and the consequent emergence of the Public
sector through their federating units, the PSUs. The New Economic Policy
initiated in 1991, has brought a level playing ground for the private sector.
Though public policy favoured disinvestment of the public sector, its role is not
that of an underdog. However, public sector remains the main stay of the
economy by contributing largely to the national product, income and
employment. Though small, Kerala too has reared up its public sector, which has
been a major employment creator. That all is not well with the PSUs of Kerala is
common place knowledge.

There are many tools and techniques that can be used to bring in
radical changes in organisations, of which BPR is one of the most sought after.
It uses existing technologies like TQM, Lean, Six Sigma, IT, etc. as enablers.
Suitability of the implementation of BPR depends on the possibility of drastic or
major performance improvements. The present study intends specifically to make
an assessment of the need and scope of BPR in the ailing PSUs of Kerala. To
assess the need for BPR, the gap between present performance and attainable
performance with implementation of BPR has to be assessed. Here, the need and
scope were assessed by measuring the present performance and the possibility of
major improvements, and readiness for change among the employees at various
levels. The major findings of the study are summarised in the following sections.
 193

5.1 FINDINGS

The study was conducted in four phases. The first one was an
exploratory study with an assessment of the performance of sample SPSUs in
Kerala. In this phase data were collected making use of published resources,
visiting few typical PSUs and collecting information by discussing with various
levels of executives, trade union leaders, inspecting company reports and
production records, observing the processes and performance, etc. The
performance of the companies was evaluated on the basis of BSC. The four
perspectives of BSC are Financial, Customer, Internal Business Process, and
Innovative & growth perspectives. The preliminary study gave a clear picture of
the current performance of PSUs in Kerala and the major reasons of the poor
performance. Some of the reasons for poor performance are on underutilization
of man power, non-achievement of monthly and yearly targets due to faulty
production planning and control, lack of up-gradation of technology and
machinery, and paucity in harnessing IT in functional areas. Another major
finding of the preliminary study is that most executives are unaware of modern
managerial techniques like TQM, 6-Sigma, lean, JIT, BPR, BPM, KM, etc. Due
to this issue, the use of these technology is limited.

As the preliminary study was limited to few SPSUs, in the second

phase the financial performance of all the PSUs under the Department of
Industries, Government of Kerala, for 14 years was evaluated. Evaluation was
done using tools like, Net Profit / Loss, NPR, ROCE and Altman’s Z’ SCORE.
Net profit/loss of firms was expressed in absolute/ total value terms. In 2001-02,
out of 41 PSUs, 28 PSUs incurred loss. The total loss came to 2,473 lakhs. But in
2006-07, the number of loss making units came down to 21 PSUs, and the total
profit amounted to 9012 lakhs. Performance wise, 2011-12 was the best during
the period for review. During this year the number of loss making units came
down to 19, and the total net profit increased to 26,074 lakhs. This was due to
the revival attempts made by the government during that period. Hence it can be
 194

interpreted that if suitable efforts are taken with scientific methods like BPR, most
of the PSUs can be revived. But with change in the government and priorities, the
revival attempts received a setback resulting in accumulation of loss thereafter.
During 2014-15 the total loss increased to Rs. 17,113 lakhs.

As Profit/Loss gives only absolute value which cannot be used for

comparison of performance, NPR, ROCE and Altman’s Score were used for
further analysis and comparison of PSUs under study.

NPR is estimated by relating profit to sales. Keener (2007), provided

the tool of “Mean NPR” of -1.15, which is indicative of "Distressed but Non-
Bankrupt" firms and a Mean NPR of -2.18 stands for "Distressed and Bankrupt
Firms". Accordingly, PSUs were categorized. Out of 41 PSUs, 26 PSUs are in
“Distress and Bankrupt” zone. The NPR of majority of the unites were highly
negative, which reveals the seriousness of the financial problem. Only 11 firms
had positive mean NPR.

Return on Capital Employed (ROCE) is widely acknowledged as one

of the best measures of performance and managerial effectiveness. ROCE
presents how much the net profit responds to the capital invested. Industry and
firm-wise ROCE of the selected PSUs were prepared. To analyse the stability of
the performance of the 41 firms at the profit front, the mean of ROCE and its SD
for the 14 years were arrived at. It was found with dismay that many of the SPSUs
have negative ROCE. Sector-wise and company wise analysis of PSUs were also
done with ROCE. It was found that 27 out of 41 SPSUs (66 per cent) had negative
ROCE for the period of study.

Altman’s Z-Score value is a measure for analysing the financial

distress of firms. According to Altman’s revised Z-Score model, companies fall
into three zones, based on their performance. Altman’s Z was calculated for all
the 41 companies. The group mean for the last 14 years of these PSUs shows that
 195

36 out of 41 are in distress zone. Altman’s score showed that there were no SPSUs
in the safe zone with a mean score of greater than 2.9. Only eight SPSUs were in
the grey zone and all others were in distress zone, with group mean less than 1.23.

The summary of mean values of performance indicators present a clear

picture of the financial performance of individual PSUs as well as the sector wise
performance. It shows that only nine out of 41 companies have positive values in
respect of the four performance measures. Seven companies show negative
figures in all performance indicators. These companies are in an adverse
performance situation. Further, there are 19 PSUs which have negative figures
for all the first three performance indicators, and with low value in Altman’s
index. This could also turn negative in the nearest future. Though certain
companies show a mixed pattern with a few positive performance indicators,
most of the others fare badly. The result of the study thus presents an alarming
picture. The study thus raises the need and scope for introduction of BPR for the
revival of PSUs of Kerala.

Having established the need for performance improvement, the third

phase of the study proceeded to pinpoint the factors that can bring in performance
improvements. 12 performance improvement factors were identified through
literature survey. A questionnaire having 83 domains under 12 factors was
developed. The questionnaire was administered among the executives of
different levels to assess the extent of PPIs in each of the factors. The average
PPI was found to be 58.35 per cent for 12 factors. Using the formulae of Jarrar &
Aspinwall (1999) it was found that five factors are ‘drastic’ and all other factors
are ‘major’. The combined effect would be ‘drastic’ as most of the factors add to
total performance of the units. Thus, both SPSUs and CPSUs have more than 50
per cent scope for performance improvements.

The fourth phase of the study is an assessment of the readiness to

change of employees for the implementation of BPR. Since the need and scope
 196

for implementation of BPR in PSUs in Kerala were established, there was a need
to assess the readiness for change of employees. To assess readiness of change,
data were collected from 35 executives and 147 workers by operating a
questionnaire (Abdolvand et al. 2008). The results of the study are as follows:
1. There was considerable readiness to change on the part of both categories
of employees namely executives and workers.
2. Executives were more favorably inclined to change,
3. Both executives and workers were found to be less resistant to change.
4. Contrary to the popular belief, the workers were found to be less resistant
to change than the executives.
5. Readiness to change of employees of SPSUs is better than that of CPSUs
and resistance is less in SPSUs than CPSUs.
6. Employees in both profit making as well as loss making SPSUs welcome
change.
7. There is no significant difference in readiness to change between
employees of loss making SPSUs and profit making SPSUs in most of
the readiness factors.

5.2 SUGGESTIONS

The performance of the PSUs in Kerala is very poor and most of them
are in financial distress. Immediate steps may be taken to revive the companies
using appropriate managerial techniques for drastic performance improvement.
Bases on the study the following suggestions are made:
1. The rate of man power utilisation is dismal in a number of companies. The
managements can take appropriate steps for the redeployment of
employees for their better utilisation.
2. In some companies, the products, technology and machinery are obsolete.
So products should be redesigned to meet the current customer need.
Better technology should be adopted and obsolete machinery should be
replaced with modern cost effective ones.
 197

3. Use of IT is very limited in most of the organisations. Steps should be

taken to use IT in areas such as: inventory control, purchase, R&D, etc.
Use of IT would enable optimum utilization of man power and excess
manpower, if any, can be redeployed to other productive departments. A
comprehensive ERP package suitable for SPSUs in Kerala can be
developed and may be implemented with suitable modification for each
company. No available package is suitable for use in PSUs in Kerala and
also the cost is so high which is not affordable to medium scale PSUs in
Kerala. Use of IT in all areas of business will enable better utilisation of
resources and efficient production planning and control and there by
drastic performance improvement can be expected. Government can
provide concessions or subsidies for implementing this software.
4. Obsolete technology and machinery is a major problem in PSUs.
Government may consider forming a full-fledged Research and
Development Centre for developing new products suitable for each PSUs
and improving the existing products as per changing requirements of
customers. Use of improved technology would be cost effective. Existing
machinery in some companies can be shared for use by other companies
which cannot afford to purchase that machinery. Companies can form
strategic tie-up to share technology and manufacturing facilities.
5. Most of the executives are not familiar with modern managerial techniques
like Lean, Six-sigma, TQM, BPR, BPM, KM, etc. They should be given
training in using these techniques. There is an institution under the
Government of Kerala known as ‘Centre for Management Development’.
This institution can be utilized for providing assistance and training to
managerial persons of PSUs. Their service may be effectively utilised for
this purpose. All the employees can be trained in their respective areas.
Potential areas of training could be productivity improvement methods,
quality improvement methods like six-sigma, waste reduction methods
like lean, inventory control methods, etc.
 198

6. Companies can form strategic tie-up with leading Institutions of higher

learning like Universities, Engineering Colleges and Management
Institutions for implementing modern technology and managerial
techniques.
7. Government had constituted a body known as ‘Restructuring and Internal
Audit Board’ (RIAB) during 1994. Its purpose was to take initiative to
reform State PSUs through restructuring. It functioned very effectively
during the period of 2006-07 to 2010-11. PSUs administered by the
Industries Department of GOK, had registered excellent growth and
commendable performance during 2009-10. ‘Concerted efforts of the
government could bring radical changes in the operations of the units’
(RIAB 210). It has increased their turnover and the sector as a whole was
making profits continuously. There was a significant improvement in the
performance as compared to preceding years. It is not functioning as
effectively as before. It had provided great services for the cause of PSUs.
RIAB should be made active, and monthly review meetings with top
executives should be conducted. This will help in assessing the progress
and evaluating the performance. This will also enable prompt corrective
actions. RIAB can also take steps to appoint professional teams for
implementing customised BPR in all PSUs in Kerala.

5.3 CONCLUSION

The study was conducted in the state of Kerala to find out the need and
scope of implementing BPR in PSUs. The problems faced by the PSUs were
identified from the preliminary study. A detailed analysis of all the 41 PSUs
under department of Industries, GOK were also done. Analysis of financial
performance was done using Net Profit/Loss, NPR, ROCE, and Altman’s Z’
SCORE model. Altman’s Z’ revealed that none of the Kerala PSUs are in the safe
zone. Except eight companies in the grey zone, all others are in distress zone.
This presents the need for drastic performance improvement of PSUs.
 199

This study identified 12 factors of performance improvement viz.

Cost, Quality, Time, Delivery, Flexibility, Growth, Service, HR, Trade Union,
IT, Political, and Obsolescence. It is seen that on an average, 58.35 per cent
improvement is possible in the above 12 factors adding to the functional
capabilities of the PSUs. If really carried out it will definitely be a very significant
improvement in the total performance. It was also found that in the 12 factors
studied, individual PPI are either ‘major’ or ‘drastic’ and combined effect would
be ‘drastic’. This is ample proof of the scope of drastic performance improvement
in PSUs of Kerala.

Another major finding of the study is the attitude of the human factor.
BPR is a fundamental and drastic change. It cannot be successful unless the
human agents of production within the firms turn themselves as protagonists of
the changes. The study brought out that both the executives and workers are ready
for changes. Employees of loss making units and profit making units have the
same degree of willingness to change. This attitude bodes well for the industrial
development of Kerala. In short there is ample scope for the implementation of
BPR to revive the PSUs of Kerala.

For the success of BPR, business leaders and IS must work together.
IT has major role in all the phases of BPR. IT acts as an enabler in the first phase,
a facilitator in the second phase and an implementer after the BPR design is
complete. Use of IT lead to benefits such as reduced handling costs, consistent
order cycle lead times, reduction in stock, reduction in risk of lost orders, security,
and close relationship with suppliers and customers and so on. IT can also be
used in R&D, inventory control, planning, process control and in many more
areas that add to the business efficiency. However, use of IT is mostly an
exception rather than a rule in Kerala PSUs on the perception of loss of
employment.
 200

BPR is a general theory, but a BPR project is unique. In other words,

a BPR project must be tailor made to a specific enterprise. This is because each
enterprise is different from the other in technical conditions, use of technology,
resource capabilities, environmental influence etc. For example, one of the major
problems in the case of KAL was obsolete product resulting from use of obsolete
technology. The BPR implementation strategy for this unit cannot be replicated
for another PSU. In other words, the methodology for BPR implementation
should be developed before initiating BPR project. Some possible BPR
methodologies include Rahimi’s four stage model (Rahimi 1996), Van der Aalst
& Van Hee’s (Van der Aalst & Van Hee 1996) High-level Petri nets tool,
Parnaby’s (Parnaby 1991) five-stage methodology, Lee & Chuah’s (Lee & Chuah
2001) ‘SUPER methodology’, Valiris & Glykas’ (Valiris & Glykas 2004) Agent
Relationship Morphism Analysis (ARMA), etc. None of these methodologies
would be a good fit for any enterprise. Rather a firm need to select elements from
some or all of them depending on the micro circumstances of the firm concerned.
However, this is an area where there is much scope of further case study research
for developing suitable methodology for implementation of BPR in each of these
PSUs.

The argument in the present study has been that there is the need for
BPR because the SPSUs have been performing poorly. However, BPR is not an
antidote for lossmaking enterprises / PSUs alone. It can be implemented in profit
making PSUs as well for making them more efficient.

This study makes a modest contribution to BPR theory. BPR literature

so far has not mentioned some of the factors of improvements identified in the
present study like technology obsolescence, effects of trade union, political
parties and their policies could be a performance influencing factor. All these are
studied in this research work and further detailed research work is required in
these theoretical areas, and hence it also contributes to the theory of BPR.
 201

Appendix 1

Table A 1.1 Sectors & Companies Selected for the Study

SL. NO. Sectors & Companies

I CHEMICAL SECTOR
1 The Kerala Minerals& Metals Limited (CH-1)
2 Kerala State Drugs & Pharmaceuticals Limited (CH-2)
3 Malabar Cements Limited (CH-3)
4 The Travancore Cements Limited (CH-4)
5 The Travancore-Cochin Chemicals Limited (CH-5)
6 Travancore Titanium Products Limited (CH-6)
7 Kerala State Mineral Development Corporation Limited (CH-7)
II CERAMICS & REFRACTORIES
8 Kerala Ceramics Limited (CR-8)
9 Kerala Clays and Ceramics Limited (CR-9)
III DEVELOPMENT & INFRASTRUCTURE AGENCIES
10 Kerala State Industrial Development Corporation Limited (DI-10)
11 Kerala State Industrial Enterprises Limited (DI-11)
12 Kerala Small Industries Development Corporation Limited (DI-12)
13 Kerala Industrial Infrastructure Development Corporation (DI-13)
IV ELECTRICAL INDUSTRIES
14 Kerala Electrical &Allied Engineering Company Limited (EL-14)
15 United Electrical Industries Limited (EL-15)
16 Traco Cable Company Limited (EL-16)
17 Transformers and Electricals Kerala Limited (EL-17)
 202

Table A 1.1 (Continued)

V ELECTRONICS
18 Kerala State Electronics Development Corporation Limited (EC-18)
19 Keltron Electro Ceramics Limited (EC-19)
20 Keltron Component Complex Limited (EC-20)
21 Keltron Crystals Limited (EC-21)
22 Keltron Magnetics Limited (EC-22)
23 Keltron Resistors Limited (EC-23)
VI ENGINEERING AND MANUFACTURING
24 The Metal Industries Limited (EM-24)
25 Steel Complex Limited (EM-25)
26 Steel Industries Kerala Limited (EM-26)
27 Kerala Automobiles Limited (EM-27)
28 Steel and Industrial Forgings Limited (EM-28)
29 Autokast Limited (EM-29)
30 Forest Industries (Travancore) Limited (EM-30)
VII TEXTILES
31 Kerala Garments Limited (TX-31)
32 Kerala State Textile Corporation Limited (TX-32)
33 Sitaram Texiles Limited (TX-33)
VIII TRADITIONAL INDUSTRIES
34 Foam Mattings (India) Limited (TI-34)
35 Handicrafts Development Corporation (Kerala) Limited (TI-35)
36 Kerala State Bamboo Corporation Limited (TI-36)
37 Kerala State Handloom Development Corporation Limited (TI-37)
38 Kerala State Coir Corporation Limited (TI-38)
39 Kerala State Cashew Development Corporation Limited (TI-39)
IX WELFARE AGENCIES
40 Kerala Artisans Development Corporation Limited (WA-40)
Kerala State Palmyrah Products Dev. & Workers Welfare Corporation
41
Limited (WA-41)
 203

Appendix 2

Table A 2.1 Financial Data of Kerala State Electronics Development

Corporation
V. Profit & Loss Account
Year 2009-10 2010-11 2011-12
1 Income
a) Sales/Operating Income 19141.85 20979.37 22799.67
b) Service Charges 3322.09 4219.78 7320.52
c) Less Excise Duty/Service 495.99 456.67 559.03
Tax
d) Net Sales 21967.95 24742.48 29561.16
e) Other Income 586.05 873.79 469.19
f) Accretion/Depletion (-) in 90.44 -35.02 210.49
Stock
Total Income 22644.44 25581.25 30240.84
2 Expenditure
a) Purchases/consumption of 15354.73 17303.06 21251.16
raw materials
b) Personnel expenses 4441.42 5610.36 6123.87
c) Interest and Bank charges 654.25 524.92 183.61
d) Exceptional Items - - 8.68
e) Other Expenses 850.73 925.69 1027.91
f) Depreciation 134.21 156.46 172.82
Total Expenditure 21435.34 24520.49 28768.05
Operating Profit (+/-) 1209.10 1060.76 1472.79
Prior Period Adjustments (+/-) -3494.07 -152.36 -
Net Profit/Loss (+/-) -2284.97 908.40 1472.79
 204

Appendix 3

Questionnaire A 3.1 Questionnaire on Possible Performance Improvement

of PSUs

A few statements pertaining to the performance of your organization is presented

below. Please provide your response by putting a √ mark against your choice.
Please don’t leave any questions. Your response will be kept confidential and
will be used only for research purposes.

Prof. George Mathew

Score Options Possible Improvement

5 Very High Possibility More than 80% improvements Possible
4 High Possibility 60%- 80% improvements Possible
3 Moderate Possibility 40%- 60% improvements Possible
2 Mild Possibility 20% - 40% improvements Possible
1 Less Possibility 0% - 20%improvements Possible
Score
A The Possibility of increasing/improving: 5 4 3 2 1
1 Labour Productivity
2 Machine Productivity
3 Supplier (Vendor) Quality
4 Quality of Our Product/Services
5 Quality Using SQC (Statistical Quality Control)
6 Quality of Leadership
7 Performance Using Continuous Improvement
8 Product/Service Mix
9 Material Availability
10 Adherence to Purchase Schedule
11 Adherence to Supply Delivery Schedule
12 New Product Introductions
13 Research & Development Activities
14 Sales Growth
 205

Questionnaire A 3.1 (Continued)

Score
The Possibility of improvement in my organization
B 5 4 3 2 1
by enhancing:
15 Top management commitment to change 5 4 3 2 1

16 Utilization of Human Resource

17 Training and Development activities
18 Management of Performance
19 Employee Participation in Management
Periodic Review of the performance of the
20
organization

Score
The Possibility of improvement in my organization
C 5 4 3 2 1
by:
21 Independent Strategic Decisions
22 Independent Decisions in Personnel and HR aspects
23 Appointing professionally qualified Executives
Product Lifecycle Management (Improving /
24 diversifying the products/ services when it is in
declining stage)
25 Attending to Customer Complaints effectively
26 Using better technology/machinery for production
27 Better Trade Union Participation in Decision Making
Providing more Governmental / Other Public Sector
28
Works to the firm

Score
D The Possibility of: 5 4 3 2 1
Man Power Reduction, in Service departments
29 (Purchase, R&D, Accounts, Store, Planning, etc.) 5 4 3 2 1
Using Computer
Inventory Control and Stock keeping using Computer
30
and IT
Business Activities Using Integrated Computer
31
Networks among departments
Design and Development Using Computer Aided
32
Design and Development
33 Business Transactions using IT
 206

Questionnaire A 3.1 (Continued)

Score
E Performance of my Organization is affected by: 5 44 3 2 1
34 Drawings changes
Difficulty in arranging materials with change in
35
design/drawing
36 Lack of flexibility in Production
37 Lack of range of products
38 Bottlenecks
Lack of Flexibility in using parts (interchangeable
39
parts)
40 Lack of Persons Trained in Problem Solving
41 Non Suitability of Employee for different Work
42 Loss of man hours due to Trade Union Activities
43 Lack of flexibility due to trade union interference
44 Politically affiliated Trade Unions

Score
F My Organization faces problems due to: 5 44 3 2 1
45 Obsolete Machinery/Technology 5 4 3 2 1
46 Our obsolete products
Unsuitability of our older employees for the present
47
job

Score
G The Possibility of Reducing 5 4 3 2 1
48 Absenteeism 5 4 3 2 1
49 Man-days lost due to Strikes/Grievances
50 Order Processing Time
51 Inventory Cost
52 Rectification Cost
53 Overhead Cost
54 Material Cost
55 Material damage/loss
56 Scrap
57 Cost of Lost Production (Stock-Outs)
58 Number of Reports
59 Distribution Cost
60 Over Time Cost
61 Inspection Cost
 207

Questionnaire A 3.1 (Continued)

Score
The Possibility of Reducing 5 4 3 2 1
Lost Production due to shortage of material (Stock
62
out cost)
63 Cost due to Accidents
64 Transportation expenses (Internal and External)
65 Number of Assembly Line Defects
66 Equipment Failure
67 Defects in manufacturing
68 Rework
69 Number of Inspection Activities
70 Procedures and approvals
71 Manufacturing Lead Time
72 Machine Down-Time
73 Cycle Time
74 Inspection Time
75 Customer Lead Time
76 Supplier Lead Time
77 Rushing the Job
78 Purchase Order Processing Time
79 Supplier returns
80 Customer returns
81 Customer Complaints
82 Cost due to design change
83 Employee resistance to change
 208

Table A 3.2 Domains on Possible Performance PSUs of Kerala

Sl. Domain
Factor Domain Item
No. No.
1 1 Labour Productivity
2 2 Machine Productivity
3 3 Absenteeism
4 4 Inventory Cost
5 5 Rectification Cost
6 6 Overhead Cost
7 7 Material Cost
8 8 Material damage/loss
9 9 Scrap
10 Cost 10 Cost of Lost Production (Stock-Outs)
11 11 Number of Reports
12 12 Distribution Cost
13 13 Over Time Cost
14 14 Inspection Cost
Lost Production due to shortage of material
15 15
(Stock out cost)
16 16 Cost due to Accidents
Transportation expenses (Internal and
17 17
External)
18 18 Cost due to design change
 209

Table A 3.2 (Continued)

Sl. Domain
Factor Domain Item
No. No.
19 1 Supplier (Vendor) Quality
20 2 Quality of Product/Services
Quality Using Statistical Quality Control
21 3
(SQC)
22 4 Quality of Leadership
23 5 Performance Using Continuous Improvement
24 6 Product/Service Mix
Using better technology/machinery for
25 7
Quality production
26 8 Number of Assembly Line Defects
27 9 Equipment Failure
28 10 Defects in manufacturing
29 11 Rework
30 12 Number of Inspection Activities
31 13 Procedures and approvals
32 14 Customer Complaints
33 1 Material Availability
34 2 Order Processing Time
35 3 Manufacturing Lead Time
Time/
36 4 Machine Down-Time
Speed
37 5 Cycle Time
38 6 Inspection Time
39 7 Purchase Order Processing Time
 210

Table A 3.2 (Continued)

Sl. Domain
Factor Domain Item
No. No.
40 1 Adherence to Purchase Schedule
41 2 Adherence to Supply Delivery Schedule
42 3 Customer Lead Time
43 Delivery 4 Supplier Lead Time
44 5 Rushing the Job
45 6 Supplier returns
46 7 Customer returns
47 1 Drawing change
Difficulty in arranging materials with change
48 2
in design/drawing
49 3 Lack of flexibility in Production
50 4 Lack of range of products
Flexibility
51 5 Bottlenecks
Lack of Flexibility in using parts
52 6
(interchangeable parts)
53 7 Lack of Persons Trained in Problem Solving
Non Suitability of Employee for different
54 8
Work
55 1 New Product Introductions
56 Growth 2 Research & Development Activities
57 3 Sales Growth
Product's life cycle Management (Improving
58 1 /diversifying the products/services when it is
Service in declining stage)
59 2 Attend customer complaints effectively
60 1 Top management commitment to change
61 2 Utilization of Human Resource
62 3 Training and Development activities
HR
63 4 Management of Performance
64 5 Employee Participation in Management
65 6 Employee resistance to change
 211

Table A 3.2 (Continued)

Sl. Domain
Factor Domain Item
No. No.
Loss of man-hours due to Trade Union
66 1
Activities
Lack of flexibility due to trade union
67 Trade 2
interference
Unions
68 3 Politically affiliated Trade Unions
69 4 Man-days lost due to Strikes/Grievances
Periodic Review of the performance of the
70 1
organization
71 2 Independent Strategic Decisions
Independent Decisions in Personnel and HR
72 3
aspects
Political
73 4 Appointing professionally qualified Executives
Better Trade Union Participation in Decision
74 5
Making
Providing more Governmental / Other Public
75 6
Sector Works to the firm
Man Power Reduction in Service departments
76 1 (Purchase, R&D, Accounts, Store, Planning,
etc.) Using Computer
Inventory Control and Stock keeping using
77 2
Computer and IT
IT Business Activities Using Integrated computer
78 3
networks among departments
Design and Development Using Computer
79 4
Aided Design and Development
80 5 Business Transactions using IT
81 1 Obsolete Machinery/Technology
82 Obsolesc 2 Obsolete products
ence
Unsuitability of older employees for the
83 3
present job
 212

Questionnaire A 3.3
Questionnaire on Readiness to Change

Option Always More Moderately Less Never

Score 5 4 3 2 1

Score 5 4 3 2 1
1 Managers share vision and information with their subordinates 5 4 3 2 1
There are open communication between supervisors and their
2
subordinates
Managers place confidence between supervisors and their
3
subordinates
4 Managers Constructively use their subordinate’s idea
5 There are friendly interactions between co-workers
6 Co-workers have confidence in and trust each other
7 Teamwork is the typical way to solve problems
Co-workers feel as if they are working in a cooperative
8
environment
9 There is performance recognition among coworkers
Top management generally has realistic expectation of the
10
projects
Top management usually has sufficient knowledge about the
11
projects
Top management frequently communicate with project team and
12
users
The reward system adjusts to serves the employees after the
13
changes
The performance measurement adequately corresponds to the
14
changes
15 The employees are empowered to make decisions
There are training and/or educational programs to update
16
employee’s skills
Information Technology is integrated in business plan of the
17
organization
18 The organization extensively uses the information systems
There is efficient communication channel in transferring
19
information
 213

Questionnaire A 3.3 (Continued)

Score 5 4 3 2 1
Managers are anxious about losing their authority after the
20
changes
21 Employees are worried about losing their job after the changes
There is skepticism among employees about the results of the
22
projects
23 Employees feel uncomfortable with the new environment

……years
Age: Gender: Male Female

Executive Category: Top level Middle level Lower level

……years ….. . Years
Experience in this organization: Overall Experience:

Qualification: Under-Graduate Graduate

Professional-Graduate Professional-Post-Graduate

Monthly Salary (Rs.):

Up to 20000 20001 to 30000 30001 to 40000 Above 40000
______________________________________________________________________
 214

Appendix 4

Table A 4.1 Performance Improvements in Various Domains

Sl. Mean Percentage

Items
No. Value Improvement
1 Labour Productivity 3.69 63.71
2 Machine Productivity 3.74 64.86
3 Supplier (Vendor) Quality 4.03 70.57
4 Quality of Product/Services 4.06 71.14
Quality Using Statistical Quality Control (Control
5 3.74 64.86
Chars and Sampling Inspection)
6 Quality of Leadership 3.97 69.43
7 Using better technology/machinery for production 4.06 71.14
8 Performance Using Continuous Improvement 3.57 61.43
9 Product/Service Mix 3.86 67.14
10 Material Availability 3.71 64.29
11 Order Processing Time 3.83 66.57
12 Adherence to Purchase Schedule 3.94 68.86
13 Adherence to Supply Delivery Schedule 3.91 68.29
14 New Product Introductions 4.20 74.00
15 R & D Activities 3.69 63.71
16 Sales Growth 4.00 70.00
17 Top management commitment to change 3.94 68.86
18 Utilization of Human Resource 4.03 70.57
19 Training and Development activities 3.60 62.00
20 Management of Performance 4.03 70.57
21 Employee Participation in Management 3.51 60.29
22 Taking Independent Strategic Decisions 3.46 59.14
Taking Independent Decisions in Personnel and
23 4.06 71.14
HR aspects
24 Appointing professionally qualified Executives 3.89 67.71
25 Reducing maydays lost due to Strikes/Grievances 4.20 74.00
Periodic Review of the performance of the
26 4.23 74.57
organization
 215

Table A 4.1 (Continued)

27 Giving more governmental works to PSUs 3.40 58.00

More Trade Union Participation in Decision
28 3.89 67.71
Making
29 Attend customer complaints effectively 3.26 55.14
Product's life cycle Management (Improving
30 /diversifying the products/services when it is in 3.71 64.29
declining stage)
31 Absenteeism 3.74 64.86
32 Scrap 3.77 65.43
33 Inventory Cost 3.71 64.29
34 Rectification Cost 3.06 51.14
35 Overhead Cost 3.11 52.29
36 Material Cost 3.20 54.00
37 Cost of Lost Production (Stock-Outs) 3.31 56.29
38 Number of Reports 3.17 53.43
39 Distribution Cost 2.94 48.86
40 Over Time Cost 3.37 57.43
41 Material damage/loss 3.40 58.00
42 Inspection Cost 2.60 42.00
Lost Production due to shortage of material (Stock
43 2.66 43.14
out cost)
44 Cost due to design change 2.77 45.43
45 Cost due to Accidents 3.63 62.57
46 Transportation expenses (Internal and External) 3.17 53.43
47 Customer Complaints 3.29 55.71
48 Number of Assembly Line Defects 3.49 59.71
49 Equipment Failure 2.80 46.00
50 Defects in manufacturing 3.46 59.14
51 Rework 3.37 57.43
52 Number of Inspection Activities 3.20 54.00
53 Procedures and approvals 3.34 56.86
54 Manufacturing Lead Time 3.29 55.71
55 Machine Down-Time 2.94 48.86
56 Cycle Time 2.86 47.14
57 Purchase Order Processing Time 3.00 50.00
 216

Table A 4.1 (Continued)

58 Inspection Time 2.83 46.57

59 Customer Lead Time 2.86 47.14
60 Supplier Lead Time 2.40 38.00
61 Rushing the Job 2.51 40.29
62 Customer returns 3.17 53.43
63 Supplier returns 2.29 35.71
64 Employee resistance to change 2.66 43.14
65 Politically affiliated Trade Unions 2.74 44.86
66 Loss of man hours due to Trade Union Activities 2.80 46.00
67 Lack of flexibility due to trade union interference 2.71 44.29
68 Non Suitability of Employee for different Work is 2.80 46.00
69 Drawing change 2.91 48.29
Difficulty in arranging materials with change in
70 2.97 49.43
design/drawing
71 Lack of flexibility in Production 3.20 54.00
72 Lack of range of products 2.94 48.86
73 Bottlenecks 3.00 50.00
Lack of Flexibility in using parts (interchangeable
74 2.94 48.86
parts)
75 Lack of Persons Trained in Problem Solving 3.06 51.14
Possibility of Man Power Reduction in Service
76 departments (Purchase, R&D, Accounts, Store, 3.20 54.00
Planning, etc.) Using Computer
Possibility of better inventory control and stock
77 3.06 51.14
keeping using Computer and IT
Possibility of Improving Business Activities Using
78 3.17 53.43
Integrated computer networks among departments
Possibility of better Design and Development
79 3.09 51.71
Using Computer Aided Design and Development
Possibility of improving Business Transactions
80 2.97 49.43
using IT
81 Obsolete Machinery/Technology 2.94 48.86
82 Obsolete products 2.97 49.43
Unsuitability of older employees for the present
83 2.80 46.00
job
 217

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LIST OF PUBLICATIONS

INTERNATIONAL JOURNALS

1. George M, Sulphey MM,& Rajasekar S, 2014, “Organizational Performance

and Readiness for Change in Public Sector Undertakings”, African Journal
of Business management, Vol. 8, no. 19, pp. 852-863. ISSN: 993-8233.
2. George M, Sulphey MM, & Rajasekar S, 2015, “Scope of Business Process
Reengineering in Public Sector Undertakings”, Asian Social Science; Vol.
11, No. 26, pp. 129-141, E-ISSN 1911-2025.

NATIONAL JOURNALS

1. George M & Sulphey MM, 2011, “The Case of a Failed Public Sector Unit -
Keltron Counters Ltd.”,Management Researcher, Vol. 17, No. 3, pp.36-43
2. George M & Sulphey MM, 2012, “Performance of Public Sector Electronic
undertakings of Kerala”,Review of Social Sciences, The Kerala Academy of
Social Science, Vol. 13, No. 2, pp.63-73.

INTERNATIONAL CONFERENCE

1. George M & Sulphey M M, “The current Position of State PSUs: Are they
on the path of Revival”, Third International Congress on Kerala Studies,
2011 January 1-3, Vol. 3, pp. 35-36