R&D at Indian Organic Chemicals Limited (IOCL) – from a service to an enterprise: a case study

Abstract

IOCL is a pioneer in the country in the field of bulk chemical manufacture. The company achieved its leadership position by utilizing the locally available feedstock i.e. ethyl alcohol from molasses and homegrown technologies to produce a range of bulk chemicals.The R&D activity in the company started almost simultaneously with the erection of the first production plant. It was envisaged to play a role of a typical ‘in‐house’ R&D set up. Thus, its activities encompassed the traditional spectrum that most in‐house R&D departments of the times were built to perform. These were:1. Supporting ongoing production activity.2. Value addition by extending the product line.3. Improving the quality of the products.The R&D department played these roles competently. Towards this end, the department was well served by trained task oriented staff. However, perhaps the very success of its efforts led to the development of a highly inward‐looking culture. However, the post liberalization era brought with it a new set of challenges. With entry barriers slowly diminishing, the company was no longer able to sustain its position of pre‐eminence in the fields that it was a leader. Local competition by leaner and meaner players equipped with better technology also played its part in this erosion. Unfavourable economies of scale and lower margins on the traditional products led to the management to rethink on future business strategy.A change of course was called for. For a company with IOCL’s resources, the course change that the management thought would preserve share holder value, was to shift the product mix from bulk chemicals characterized by high volume/low value to fine and specialty areas characterized by low volumes and high value. It decided that the R&D would provide the driving force for this strategic change. In essence, the R&D would be supporting a cluster of new activities, which would be revenue generating and thus be able to metamorphose from a cost center to a profit center. In order to play its new role, the R&D required to redefine its own character. Several changes in the existing systems and introduction of some newer management practices were necessary. The steps to be taken were identified as follows:1. Shifting from a skill‐based to knowledge‐based staffing;2. Creating a structured approach to project management;3. Initiating a multi functional approach to shorten the project time cycles;4. Putting in place mechanisms to interface and interact with the customers;5. Inculcate a business orientation into a traditionally groomed group of scientists and technicians;6. Integrating the activities of R&D into the enterprise resource planning network of the company;7. Most importantly, set up a mechanism to market the R&D services.