IIMC Case Study - Growth of mjunction over the last decade

Digitization involved painstaking work of redesign of client processes through

development of software, and creation of surveillance and archiving systems
inside mJunction on the one hand, and negotiation of new inter-firm relationsin
the trading ecosystem on the other. Careful negotiation, deep understanding of
practices and priorities of managers in client organizations, and micro-
innovations around design of the electronic trading process presents one with a
picture of a crafting of growth.

Mjunction was incorporated as metaljunction services limited. It was renamed as

mjunction services limited in January 2007 after it had diversified into e-
commerce in areas beyond metals. metalJunction, as a matter of fact, started
operations with hired software from indiamarkets.com on a per event basis.
Once the proof of concept was established, it made investments in software/
hardware and in building a technology team. Work began initially with a team of
6 people three each from SAIL and Tata Steel on deputation. SAIL and Tata Steel
became the initial clients for whom e-commerce services began to be conceived.
Unlike other e-commerce initiatives in steel, which were well capitalized by
thesteel parent companies, metaljunction began with meager resources. So the
business model had to be based on generation of revenues from very early on.
Business plans requiring large upfrontinvestments could not be pursued. A
culture supporting investment frugality was built up from inception. Moreover,
the shareholder agreement between SAIL and Tata Steel did not specify anything
on granting business to metaljunction, quite unlike the practice with steel e-
commerce ventures in the West. Generation of business had to be done deal by
deal, department by department in both SAIL and Tata Steel and later with other
clients. This brought the organization very close to the clients.

The focus was on identifying areas where it could very quickly demonstrate
value addition to the client. It started business operation in November, 2001. One
of its first transactions was a buy for Tata Steel huge quantity of industrial paints.
Most of the industrial paint manufacturers in India participated in the online
reverse auction and Tata Steel got a price that was below their expectation.

Our second major project with Tata Steel was on trade financing. Tata Steel had
arequirement to reduce credit on sales to its distributors. Credit sales had
expanded in1990s, as a sales push initiative, especially during the recession
years. We talked with banks and it took a lot of convincing before we could get a
tri-partite agreementbetween us, the bank and Tata Steel, where Tata Steel
provided a comfort letter to the bank committing to cut off supplies to
distributors that would default. It stood as thirdparty authenticators, who would
manage the information processes. It created a webbased platform where a
distributor would request for finance and it would be routed through Tata Steel
for the bank to provide credit to the distributor. We convinced two already
known distributors to accept this offer, 0.32 million INR was financed. We met
Mr. Muthuraman, Tata Steel MDone of those days and he was asking what we
were doing in channel finance we said we have financed 0.32 million INR he said
that is a pittance we want you to dothousands of millions. Today more than 100
distributors of Tata Steel are online andmore than INR 1 billion of distributor-
finance flows as unsecured, non-recourse creditfrom participating banks every
month. This business has matured into a separatejunction called finance-junction
today. This was the real first project that got us somemileage in Tata SteelThis
initial project was executed on Tata Steel sales systems. Most of 2002-03 went in
whatViresh calls concept selling. There were several rounds of meetings with
SAIL and Tata Steelofficials, where mjunction team would try showing how e-
auctions could change the clientsprocesses and help them sell or buy better. A
deep understanding of the processes of the clientand personal relations with
senior managers who had to take the call on moving thesales/procurement of an
item to the on-line platform helped immensely. As Ujjal Bhattacharya,currently
VP, Mjunction, also a member of Vireshs SAP implementation team:We started
with Tata Steel first since we thought that they may be amenable tochange more
easily. Because I came from Tata Steel I was dealing with my earlierbosses they
gave the first materials for which we got the mandate to do on-lineauctions. Old
relationships came in very handy. For Tata Steel, we got the first mandatefor sale
of some flat products from Chief of Marketing and Sales even in flat productsthey
have items that are not to order but are prime otherwise it is a headache for
theMarketing and Sales team to dispose this off those are migrated to our
platformfirstnow that becomes a prime product for me it was not important for
themOn the sell-side, for both Tata Steel and SAIL, mjunctions efforts were
concentrated on whatare called secondary products. Secondary steel is non-
standard (see footnote 2 on page 1).While primary steel is sold in India on the
basis of listed price set by the steel producers,secondary steel pricing often
involved an auction process. The value of secondary steel woulddepend on the
use a customer can put it into. Information lying with customers influences
thevalue one can put on secondary steel. Both prime-over-runs and secondary
steel were soldthrough processes that often differed across Tata Steel and SAIL
plants.

in questions of conflict in roles and powers of managers in different positions in

theorganization. As one of the senior managers said:Migrating to online required
process changes to be made. Exposure to the Tata SteelBPR project helped me
understand how to look at process changes. In one of our clients for selling some
kinds of defectives they would post the expected volume ofdefectives in the next
month - every branch office used to have tenders on a commondate for the
defectives next month and get the H1 in each branch this used to go to
thenational sales and marketing office (this used to take 7-15 days) country H1,
H2 wasarrived at for each category and then material in that category used to
move to differentstockyards orders were booked before the
generation/production and at end of monththe requirement to keep zero
inventory of defectives was met..Invariably it took timeand material actually
reached stockyard at end of month so the pressure to give creditincreased to
ensure quick lifting of the material so that month-end inventory was low another
anomaly was that material would move to say Chennai if its H1 was next
toKolkata even if H2 in Kolkata was higher..when we took the process online
thisinternal process change had to be negotiated through we had a single
national auctionex-plant with pre-announced fixed extra amount added if bidder
wants delivery at anyof the stockyards spread across the country..when we did
the auction a few times itwas soon apparent that material moved only in a
particular region where the realizationfor the company was the highest..Prime
billets also were sold in the same way theyhad region-wise quota since they
thought that it would protect the regional prices..pricefinalization was similar
branch based..same thing used to happen.. so the clientengaged a marketing
agent who used to guarantee payments from customers they usedto take some
money from the client and some from customers for this guarantee so allbuyers
could not also come in without getting vetted from this marketing
agent..therewere also some nexus.. that was the scenario we pushed for this the
marketing agentwas also threatening us he had political influence - we said that
let price decide whatgoes where national auction, no credit, no marketing agent
no quota by 4th of amonth the e-auction was over..when we moved into the
market we realized that newbuyers who came in said that they did not want to
buy from the client (who was anywaysmaller than competitors in billets)
because they were forced to go through themarketing agent..on the first auction
we got a straight jump in price of Rs. 600/- pertonne..In SAIL, mjunction faced a
different set of issues. They began initially with the Central Marketing Office of
SAIL but several secondary products were actually sold by the respectiveplants
of SAIL The key person to whom the concept needed to be sold was the plant MD

We proposed a forward auction in July 2003 we did 2 in August we did 4

auctions-- then they started from September announcing a regular auction at a
pre-announced date..

It continued for almost a year..in an internet auction the bidders are anonymous
one cannot see the other party so trust of the auctioneer is very important we got
this through very painstaking work over a few years no amount of verbal
assurances would suffice we realized.. Mjunction also organized extensive
training of traders. Most bidders were not familiar with computer usage..we had
to train lots and lots of people we used to be in office till 10 in the evening..I
remember one fellow came witha standard 8th kid saying yeh mere liye bidding
karega the father was not familiar with computer and the kid had just learnt may
be booting the computer and using a wordprocessor or something like that.
Much of the initial reluctance of the traders stemmed from their apprehension
that this initiative would not last like several such attempts from public and
corporate bodies, it would peter off after the project financingexhausted.. The
initial effort of market-making was mostly concentrated on shifting existing
bidders/buyers for secondary products of a plant to the on-line mode.
Establishment of trust on the auction platform was a slow process. Credibility
was established slowly bidders have to know sunani hain there must be a point
where their grievances are heard and that was done.. but what established the
credibility was when they realized that there are no fake bids the lots that went
at a higher price than what they expected was finally being picked up from the
yards. A bidder questions a bid when the price has gone well beyond his
expectation and they start questioning the bid - they cannot find who has quoted
from the online platform the auction will close but they will note the lot and find
out who was lifting that lot..When again and again they see that material is
actually lifted then they understand that there is no fake bids in this platform.
Stabilization of the e-auction process While the initial work that focused on
getting both the client and the buyer/bidder on the online platform brought in
the business, it hardly ensured a stable embedding both inside the cliento
rganization as well as in the trading ecosystem. To the extent that e-auctions
changed the balance of power, and restructured relations both inside and outside
client organizations, it remained contested. As one manager put it quite
plainly:People on the buy and sell side consider this a zero sum game price is a
power game .

then we had a zero problem bidder comes and says that he forgot to put in a zero
so we had a system that no auction gets below 50% of our estimate on the buy
side that was the cut-off limit - then made the cut-off dynamic depending on the
current rate as rate comes down the cut-off limit also comes down..So zero
problem was annihilated..Now customers would come and say mere se galti ho
gayi galat biddaal diya many of these bidders are very strong we had to also go to
Steel Ministry sometimes there were complaints so issues were raised about the
reliability of the platform now we have a system where if a bid is placed that is
10% below the marketprice we put in this system that throws up a warning if the
bid is 10% less than marketrate one has to press OK to put in the bid there were
wrong bids coming still we had no LOGS of OKs when we started we did not
think a log would be needed why will people bypass it we thought a warning was
enough but till we created a LOG and used it to dispose off complaints the
problem kept coming in so problems keep coming up and design of our system
improves.. Another manager provided an account of the problems faced during
stabilization of the first auction at one of the plants where e-auction was started:
After the first few auctions there were letters from customers saying they
wanted to bid 500 rupees more but the system did not allow power problem was
there or internet got disconnected we used to get fired GM or ED of the plant
would call us at 8.00 am in the morning and we would be fired we said that these
are mischiefs but then we were told to prove that this is a mischief..; we
developed the login report at what time the customer had logged in and what
time they left or logged out by designing it into our system in the next
encounters the complainants were confronted with this data aap kitna baje
logout kiya and their words were matched with the log report..The auction was
accepted inspite of all these customer complaints but this was after a lot of
efforts on our part to redesign the system and generate the data that would make
the decision makers in plant comfortable.. there was a court case also. During the
initial days several technology glitches also caused inconvenience in the auction
process. Mjunction could resolve several of those through incremental
development of tools and micro-technologies that created a smoother auction
experience. Nowhere in the world is secondary steel sold to so many buyers. In
some auctions you could have several hundred bidders. The technology
platforms we bought were designed for procurement and worked fine with 5-10
bidders that is all right on buy side; but not for the sell side in steel..We had to
solve these problems...the auction engine did not have an automatic refresh
facility for the user screen as well the user . This problem was overcome in about
a year by having first a designated client person who would be called
immediately on closure of auction of a lot and over telephone the confirmation
would be obtained..later a system was designed to enable an observation login to
a client person so that the price in the auction is visible to the client (with
allother information being blinded) so that upon closure the client can send the
confirmation through the IT system itself.. During those initial days, when the
credibility of the e-auction process was yet to be firmly established, all the senior
people used to get involved in the auctions. On the client side, as well, senior
managers would carefully monitor auction processes. Resistances were faced in
several forms. When e-auctions for Tata Steel secondary products started, close
to fifty traders came and demonstrated before the Chief of Secondary Products
Marketing of Tata Steel at Tata Centre in Kolkata. Client support was crucial for
mjunction. Both Tata Steel and SAIL ensured through its own rules/procedures
that when a certain category of item is shifted to the on-line process, it is not
taken off-line very easily. This created pressures for unwilling buyers to also
slowly shift to the online mode. While online sales had the possibility of throwing
open the information on particular auctions to anyone across a vast geographical
area, outside participation by non-local buyers was not so common. Traditionally
secondary and prime overruns were sold to buyers groups that we relargely
plant-specific and hence local. There were very few common buyers across
several plants. Part of the problem arises because of the nature of the products
and the fact that local backward linkages with user industries (usually small
scale) supported a traders auction participation. When mjunction launched e-
auctions in a plant, for the first few auctions only the existing buyer group was
allowed to participate to ensure a smooth auction. As a manager put it: When we
approached new group of bidders to migrate them online, we made it a point to
emphasize that only the price-discovery was being shifted online.. All other
aspects remain the same so relationships that a trader has to ensure a smooth
trading interface continues to be valuable. However, the very premise of the e-
auction mode is based on possibilities of enlargement of the buyer group. New
bidders were therefore essential for the migration to the online mode to be
deemed as a success. There were however several hurdles that came in. While e-
auctions digitized the price discovery process, preserving the anonymity of the
bidder, the post-auction physical delivery and lifting of the material continued to
rely on old processes and arrangements. Participation in bidding also required
pre-bidding inspection for the bidder to get a fair ideaabout the auction lot. The
time allowed for pre-auction inspection was usually quite short too.New buyers
who often disrupted existing arrangements amongst an entrenched buyer group

Discontinued. While lifters who were providing information on auction lots lost
interest,6 inlogistics the company was faced with serious problems of material
pilferage while on transit.In cases where outside bidders faced major problems,
mjunction tried addressing it through theadministration of client
organization.When the client starts paying you they start evaluating you in
review meetings oneissue that comes up is that there are all these same bidders,
new bidders are not comingin7 then we gave these presentations describing the
processes and why new biddersare not coming in highlighting the threats that
new bidders faced..then they starttaking some steps if these issues are controlled
then one or two bidders (new) come one or two new bidder is enough to break
the cartel; then when threatened they wouldrun off and not participate in next
auctions prices would come down again; and thiswould be highlighted to the
client..so the client takes steps again unless it is apolitician controlled mafia they
can control it..then many of the mafia groupsregistered as companies and started
participating in the auction.The e-auction model stabilized gradually and got
legitimated within the clients organizationalcontrol systems (including
compliance requirements such as vigilance and audit) and withinwider
discourses in the trading ecosystem. The business matured by 2006. In 2010-
11,metaljunction sold 2.1 million tonnes of material (of which close to 50% was
steel) with atransaction value of INR 38 billion. Although SAIL and Tata Steel
continues to be the majorclients, it has expanded its base to 25 clients. It had a
registered bidder base of over 11,500 in2011. E-selling of secondary steel was an
institutional change. As one senior manager ofmetaljunction commented:The MD
of XYZ steel plant once told me that the biggest contribution of mJunction isthat
it has taken away the headache my greatest headache was when the
MLA/MPwould send letters recommending someone to be given some secondary
material Ipass it on to Marketing and it is passed on to mJunctionFor us it is easy
we just tellthem to participate in the online auction..that pressure on the MD is
gone.In the early years when the main task was establishing the legitimacy of the
e-auction process, asmall team managed almost everything at metaljunction. As
Kaushik, one of the members of thesmall initial team says we were all multi-
tasking. But there were three different types ofactivities that were being done
even then a) client acquisition, which primarily involvedcontinuous negotiation
with the clients who would give the mandate for conducting auctions either on
buy or sell side, b) market-making, involving getting bidders on the electronic
platform, conducting the auction itself. Once, e-auctions got established as a
routine process, the volumeof auctions and transactions started rising fast
requiring specialization and partitioning of tasks.Metaljunction: Organization of
the auction processMetaljunction today is one of the most matured
division/portal of mjunction with stablerevenues. Every day 35-40 auction
events occur on its platform. While most are sale of small lotsof 100-200 tonnes
of steel, a few of the lots can be quite large - over 10,000 tonnes in somecases.
The auction room process that was at the center of attention of senior managers
earlier hasbeen routinized. It was also on the details of auction room process
that the contests overcredibility of e-auction often hinged. Standard operating
procedures have now been developedfor running of auctions. Most auctions in
metaljunction are of English no-ties type.8Auctionroom work is a staff function
today. As senior managers narrated:We facilitate selling do not take ownership
of any products 4 distinct type ofactivity can be recognized in metaljunction a)
new client acquisition leading to abilateral MOU, which is referred to as new
business development, b) accountmanagement or getting mandates from a client
who is signed on to sell products on ourplatform, migrate more and more
products to the online mode; account managersgenerally being co-located at
client manufacturing site, c) operations, which consist ofpre-auction activities
(mostly would be market-making with the bidding community),conduct of
auction (in auction room) and post-auction activity9.Auction process is managed
by Auction Controller who usually sits inside a closetedspace where all
conversations and telephone talks are recorded10 there are around 7-9of them
for Account Management we have in each plant (or manufacturing site)
aCustomer Relationship Manager. We have a pre-auction team that is located in
Kolkatathat works on developing the lot information that is broadcast to
bidders,11monitoringbidder activity and talking with dormant bidders who have
not put in bids over the last3 months and we also have a field force of 13-14
people to get new clients, do initialdocumentation for registering on the portal,
train them if needed..New BusinessDevelopment is a very small team of 2-3
people we intend to give more emphasis on8The highest bidder wins a lot.
Bidding customers can see the highest bid at each point in time in the screen, but
thebidder identity is not disclosed. The auction controller can see all the bids,
and the list of bidders who have put in abid. The auction remains open for a
specified period of time. If, however, any bids come in at the last few minutes,the
time is automatically extended to provide a chance to bid to others participating
in the auction. In keenlycontested auctions, the auction time can get extended
several times like this. 9In FY11 the post-auction team restructured Tata Steels
EMD refund (of either Earnest Money Deposit for bidderswho fail to win in the
auction or refund due to shortages post material lifting) process reducing cycle
time from this activity going ahead. Over the last few years relative emphasis
has also shifted toAccount Management and away from pre-auction market-
making activity withbidders.The standardization of work in metaljunction
occurred over a period as the senior team initiallymanaging auctions was
redeployed. The auction design was stable by then in terms oftechnology, in
terms of clients process alignment and in terms of the diffusion amongst
thebidder community. Similar items keep coming up for auction, so one does not
encounter newmaterial. The focus of operations has now shifted to managing a
stable throughput of work,ensuring smooth conduct of an expanding volume of
transaction.After metaljunction managed to migrate most of secondary steel
items of its major clients to theonline platform it reached a growth plateau in this
segment. Attempts to develop business withsecond tier steel producers did not
take off well. Relationship with a few clients whommetaljunction had signed on
in this segment turned sour. There were several cases where suchfirms were
unprepared to commit to the auction rules, initiating post-auction negotiations
withbuyers or suppliers. This was damaging to the reputation of the auction
platform. Promotercompanies SAIL and Tata Steel also shied away from
developing online selling models for theirprimary products that moved through
distributors.12As a press report on Metaljunction says:While Metaljunction has
been selling secondary steel through the e-auction route,primary steel, according
to its managing director, would be sold at prices suggested byits owner-clients
(Tata Steel and Steel Authority of India). Tata Steel too is also likelyto move over
to selling 'primary steel' this way, although the Tata Steel managingdirector, B
Muthuraman, in his inaugural address today, appeared not very convincedabout
doing so. I have always held a view that prime steel is something we must holdon
to, before it becomes commoditized, said Muthuraman, adding that at a recent
IISImeeting it was briefly discussed that steel companies must "somehow
prevent futurescoming into steel.13In FY07, metaljunction moved into trade of
other non-metal products (mineral and metallic),primarily iron-ore fines and
lumps signing on all the five important producers as clients. It soongot 100%
share of iron ore auctioned by OMDC. It has also moved into e-sales of
manganeseore, coal chemicals, slime etc. In FY11, these new products made up
almost half of the totaltransaction tonnage on metaljunction.com. Within a few
years mjunction organized itsinvolvement in other B-B e-commerce such as
Asset Sales, Procurement, e-sale of automobiles(which combined B-B and B-C)
and B-C e-commerce in separate divisions/portals. Operationsrelated to e-sales
of coal through coaljunction began from 2005. In FY12, the
promoterscontributed around 40% of total business Such diversification was
driven by extension of the around 5 years back in terms of revenues, profits and
share of sales from non-promoter clients. Ifone recalls the skepticism
surrounding its founding moment, the significance of the journey ofthe last
decade stands out even more clearly. Mjunction, in contrast to initiatives such
asindiamarkets that tried to create a market-place, worked in close integration
with the client(large firm) either on the buy or sell side This has been much more
successful than the market-place strategy. Client organizations seem to have
served the crucial function of coordinationrequired to drive changes in
entrenched practices within a business ecosystem, enabling thedigitization of
transactions. Mjunction has managed successfully the dyadic coordination
withthe client organization through close client relationship.Auction service
provisioning, as a business, has been under pressures of competition. As
MSTC,the diversified public-sector trading company (FY10 turnover of INR 43.81
billion) that hasrecently moved into e-commerce notes in its Annual Report,
FY10:Although there are other small competitors in the market, which are
pushing down therate of service charge, the scope of increasing business volume
is enormous.however, the service charge in this business is very low.
(p.24)Mjunction itself has been feeling the pressures of competition in
provisioning of auctionservices. As a senior manager remarked:We have not
always been able to differentiate ourselves as an auction service providerfrom
other small players it brings in pressure on margins. We do much more
thanauction service provisioning; market-making is an important part of what
we do butclients often do not appreciate this.14Bulk of mjunction business right
now is based on e-auctions that unbundles the process of pricediscovery from
other trading processes. This unbundling, to the extent that it is achieved on
theground, along with the reach afforded by internet based technologies allow a
more intensecompetitive market to spring up around the auctions.Can one look
back at the experience of steel e-sales? mJunction could digitize the
existingphysical tendering processes, but its reach of digitization did not
embrace the whole steel tradeecosystem. As steel moves to the trading circuits, a
complex web of traders, brokers, financiersmove it to final consumers. Except for
a few who buy steel from SAIL or Tata Steel, mJunctioninitiative has not touched
the bulk of the trade sector. Digitization offered by mJunction has notalso been
successful in embracing the primary steel sales of its promoter steel firms or that
of thelarge number of smaller steel producers who today control close to half of
the domestic steelmarket in India. Does it make sense to think of e-commerce
models beyond auctions, based on,for instance, online negotiations, online e-
financing and market-making? Digitization generates
7/28/2019 mJunction