Based on the case study by Navneet Bhatnagar and Kavil Ramachandran
When decision-making is embroiled in emotion, it is that much more difficult to arrive at a logical conclusion. Rohit Gupta, Strategy Head, Western Business Unit of Ketan Logistics Limited (KLL) and the oldest third generation member of this family business, was torn between living up to family expectations and pursuing his dream of setting up his own entrepreneurial venture. The case, set in 2014, details the humble beginnings of the company, key milestones in its growth journey and KLL’s standing in the industry. It also describes Rohit’s feelings of helplessness and frustration over the slow pace of changes in the internal governance of the business, the company’s stagnant revenue growth and profits, lack of strategic direction and professionalisation issues. Should he stick with the family business out of a sense of loyalty and responsibility or should he follow his own path?
KLL - The Growth Story
Ketan Logistics Limited (KLL) had started out as a modest commercial transportation business in 1986 and emerged as an integrated, end-to-end logistics service provider by 2014. The company had grown from strength to strength.
At the helm of affairs was Rohit’s father, Ravi Kumar Gupta, KLL’s Chairman and Managing Director, who had been shouldering the overall responsibility of the family business after the untimely death of his father and founder of KLL, Ketan Kumar Gupta. Disciplined and focused, Ravi worked aggressively to build and develop KLL and fostered long-term business relationships with key clients and financial institutions. Ravi enjoyed the trust and confidence of his younger siblings, Vijay, Shiv and Jiten, all whole-time Directors at KLL.
Under his guidance, KLL witnessed some important milestones in the 1990s, including the diversification of the company business into bulk transportation of petroleum products, and the acquisition of key clients — Maharashtra Iron and Steel Company, Pune and Indian Petroleum Company, Mumbai — which significantly increased business volumes.
KLL’s annual sales in 2001 had touched INR 1 billion, and by 2005, KLL’s network expanded to include 100 branches across India. It also had financial backing from a consortium of banks for its working capital requirements.
The next decade saw KLL acquiring the licence to operate container trains that provided connectivity between major industrial towns and major ports. A private equity firm was roped in for the required capital infusion and this served to enhance transparency and improve processes within the company. KLL established a project logistics and over-dimensional cargo (ODC) division to carry large equipment for industrial clients on specially designed vehicles. It implemented enterprise resource planning (ERP) software and launched several initiatives for the welfare of its 3,400-odd employees.
In 2011, the company established a freight forwarding division offering end-to-end logistics solutions including coastal shipping and transportation solutions to export-import businesses. The same year, it received ISO 9001:2008 certification. The company’s sales turnover had reached the INR 15 billion mark by 2011-12. The following year, KLL was registered as a food business operator (FBO), permitting it transport food and processed food products. It also established a fully-owned subsidiary in Nepal and associate networks in Bangladesh and Bhutan. The company’s total revenue for FY 2013-14 was INR 18.41 billion, with a net profit of INR 198 million and total assets valued at INR 5.5 billion. It had more than 2,000 corporate clients across industrial sectors and had built a good reputation for its quality of service.
Surviving Competition in the Industry
In terms of annual revenue, the size of the Indian transportation industry in 2014 was estimated to be around INR 2,500 billion. KLL had less than 1% market share. The industry was dominated by small firms who had 85% of the market share, with a meagre 15% going to the organised sector. With clients looking for viable options to control their transportation and operating costs, there was an increasing need for firms that offered a wide-range of services at competitive costs and were professionally managed. Responding to the emerging needs of the industry, Rohit worked on KLL’s IT operations, driving process improvement and automation initiatives. With new and changing market demands and resistance to change from some of KLL’s internal stakeholders, business was not easy. And no matter what new measures the company adopted, they were still not enough for it to remain competitive.
A year after establishing and registering a corporate entity along with his sons, KLL’s founder Ketan Kumar Gupta died in a tragic accident, leaving the onus of the business and family responsibility to Ravi, his eldest son. With Ravi’s insight and financial discipline, the business thrived and his efforts were well supported by his brothers. They were not only very close to each other but enjoyed tremendous mutual respect.
However, with the entry of the next generation, the dynamics changed. In India, it is not uncommon for children to join the family business. Most are inducted early on into the workings of the company and are eventually entrusted with all the top-level jobs available. The Gupta family was no different. When Ravi took charge, he split KLL operations geographically into four business units with each brother responsible for one zone. As and when a new member of the next generation completed his education, he would then join his respective father and head a division or department function.
New business opportunities were seldom explored as family members did not fancy emerging out of their comfort zones. They also had varied opinions about their duties and responsibilities, compensation, roles and career growth for their respective children. For example, salaries of the family members were based on their years of experience in the company and not on their qualitative input. There were no clear parameters for performance appraisal. And although not everyone was happy with the state of affairs, no one wanted to spark conflict within the family and hence continued to function without resistance. Some of the youngsters secretly harboured aspirations to start their own business ventures, but lacked the financial resources to venture out. Everyone involved had a different business approach, and what was lacking was a cohesive way forward.
Being part of an illustrious, closely-knit business family, Rohit’s sense of responsibility towards his father and his desire to start a new venture left him in a quandary. What he wanted was to start a logistics business that leveraged information technology at its core. Online freight exchange and logistics was an area that he wanted to explore. He had made investment estimates for the new venture at INR 50 million and was in talks with a childhood friend and businessman, Amit Goyal, to kick-start the plan. While Rohit would provide the technical know-how, his friend would provide all the funds required for the proposal and they would both be equal partners. Yet, to take the plunge, Rohit had to first inform his family about what he had in mind.
Countless questions plagued him: Would his father understand his predicament? Would he be considered selfish? And what about his cousins? Would they be let down by his decision to move out of the family business? What if the business were to fall into the wrong hands? Would it survive without his contribution? What if the new venture did not take off according to plan? Would his family view him as competition?
Rohit had to decide on the way forward. He decided to list out the advantages for both the options — staying at KLL and fighting for change from within, or moving out, starting his dream project and taking responsibility for his own actions. The plan was to sit down with his family and have an open and constructive discussion.
About the Authors
Kavil Ramachandran is Professor and Executive Director of the Thomas Schmidheiny Centre for Family Enterprise at ISB.
Navneet Bhatnagar is a Research Associate at Thomas Schmidheiny Centre for Family Enterprise at ISB.
About the Case Study
Bhatnagar N. & Ramachandran, K. (2016, July). Ketan Logistics: Charting the next route. Indian School of Business case no. ISB062. Harvard Business Publishing. http://hbsp.harvard.edu/
About the Writer
Sumitha Krishnamoorthy, freelance writer with the Centre for Learning and Management Practice at ISB, wrote this summary.