Lessons in Excellence Case

t|arslc|at|cr cl
cajaj autc |tc

|,
6ita Pirama|, Mcnc|n lJ|:r, T|. Smcr: Mcnc.r
Sumautra 6osha|, rj.ssr, LnJn us|n.ss Sc||
Sudeep 8udhiraja, V|s|:|n .||u, LnJn us|n.ss Sc||
p|esert
case coutest starts ou 21 February 2OO3
|ast date for submissiou of eutries: 2O March 2OO3
| | I R 0 D u C I | 0 |
C | B C | | D | / LESS0|S | | E/CELLE|CE C/SE C0|IESI I | E S V / R I V / | / C E R
1
|, G|:c |rcmc|
C massaged his head vhere
Lhe moLher ol all headaches
vas develoing .` !n a case
sLudy, Lhe sLories are real. Jhe
eole are real. Jhe comanies
are real. Jhe managerial
challenges are real. Jhis is
vhy so many excellenL
B-schools across Lhe vorld use
case sLudies in Lheir Leaching.
Jhe case sLudy meLhod ol
Leaching, viLh all iLs laulLs,
remains one ol Lhe mosL uselul
Lools lor laculLy and sLudenLs
in Lhe edagogy LoolkiL.
SLudenLs vho graduaLe inLo
Lhe real vorld lind Lhey have
Lo make decisions Eased on
incomleLe inlormaLion,
inadequaLe skills, and huge gas
in knovledge. YeL Lhe decisions
have Lo Ee righL. !l Lhe decision
is vrong, Lhe consequences lor
Lhe comany and a young
manager`s career do noL Eear
Lhinking aEouL.
Heling sLudenLs acquire
Lhe aEiliLy Lo silL Lhe uselul
lrom Lhe Lrivia under ressure
is vhaL Lhe case sLudy meLhod
is all aEouL. Jaking a decision
is like solving a |igsav uzzle:
a uzzle vhere several ieces
are missing. A good manager
never vaiLs lor all daLa Lo lall
inLo lace. She or he imagines
Lhe ieces vhich are missing,
Euilds u Lhe Eig icLure and
roceeds viLh Lhe decision.
two |eve|s
Jo hel Lhe sLudenL do Lhis, a
good case vriLer vill develo
Lhe sLory aL Lvo levels. Jhe
lirsL level is conLexL secilic.
Civen Lhe secilics ol vhaL Lhe
comany did or did noL do, Lhe
class should Ee aEle Lo
seculaLe aEouL Lhe hov Lo`s
and hov noL Lo`s viLh regard
Lo concreLe Eusiness siLuaLions
and issues. Jhe second level is
more general. Jhe case acLs as
a vindov Lo more generalized
learning. !L should illuminaLe
Eroad conceLs and suggesL
nev vays ol Lhinking and
Lheorizing.
Cood cases have universal
alicaLion aL a lundamenLal
level. A good case vriLer vill
undersLand Lhis and Euild
deLails inLo Lhe case vhich
Eecome Lhe clues vhich
sLudenLs use Lo exLracL Easic
issues laguing a comany.
And generally Lhe issues Lend
Lo Ee simle. JruLh is usually
hard Lo lace. Cood educaLional
insLiLuLes are Lhose vhich hel
sLudenLs lace Lhe LruLh.
momeuts of truth
An BA sLudenL aL Lhe
Harvard Business School
Lyically reads 800 case sLudies
crce upcr a t|e...
ase studies are |ile fairy stories. They are easy to read, simp|e
to uuderstaud, eujoyab|e eveu if we|| writteu. 8ut there is oue
siguificaut differeuce betweeu somethiug that begius "ouce
upou a time, there was a priuce ." aud oue that begius "the c
| | I R 0 D u C I | 0 |
over a Lvo year eriod. osL
HBS rolessors Lry Lheir EesL
Lo Ering inLo Lhe classroom Lhe
C ol Lhe comany vhose
case is under sLudy. Cenerally
Lhe C siLs quieLly aL Lhe
Eack ol Lhe classroom vhile Lhe
sLudenLs Lear his comany -
and his |udgmenL - aarL.
Jovards Lhe end ol Lhe deEaLe,
he geLs u, moves Lo Lhe lronL
ol Lhe class and Lells his sLory.
!L is a momenL ol LruLh lor EoLh
Lhe sLudenLs and Lhe C - and
olLen ainlul. BuL EoLh gain
enormously.
Jhe C is videoLaed and
Lhe Lae is used il he/she
cannoL make iL Lo Lhe
classroom Lhe nexL Lime Lhe
case is LaughL. ven Lhis has a
remarkaEle ellecL on sLudenLs.
mauagers vs studeuts
BA sLudenLs and senior
managers Lend Lo reacL quiLe
dillerenLly Lo Lhe same case.
BAs like Lo numEer crunch,
Eoiling dovn issues Lo cold
hard lacLs. Jhe numEers
clearly suggesL LhaL a lacLory
Ee closed immediaLely,` is a
Lyical BA reacLion. WhaL
aEouL Lhe share rice and Lhe
comany`s reuLaLion Such a
cuL-and-slash olicy vill
reduce Lhe comany`s aEiliLy
Lo negoLiaLe viLh suliers,
Eanks and cusLomers,` reLorL
more exerienced managers. !L
is u Lo Lhe Leacher Lo guide
Lhe discussion Lovards Lhe EesL
ossiEle soluLion(s) in an
imerlecL vorld.
!L is lor reasons such as
Lhose ouLlined aEove LhaL
CNBC !ndia and Jhe SmarL
anager selecLed Lhe
JranslormaLion aL Ba|a| AuLo
LLd` case lor Lhis case conLesL.
Jhe case vas vriLLen under
Lhe ausices ol Lhe AdiLya V
Birla !ndia CenLer aL Lhe
London Business School, and
is Eeing reroduced here viLh
Lheir kind ermission.
richuess of debate
Jhe case vas vriLLen in l,
and much has haened EoLh
in Lhe comany, Lhe secLor and
Lhe environmenL since Lhen.
Ba|a| AuLo`s markeL ca has
Eeen volaLile EuL Lhis monLh
(]anuary 2003) is shooLing
norLhvards. Jhe comany has
Eeeled u iLs moLorcycle
Eusiness, mainLained a lirm
hold on Lhe scooLer markeL,
and diversilied inLo insurance.
AL Lhe lamily level, discussions
are on-going aEouL Lhe role ol
various lamily memEers in
Ba|a| AuLo as vell as oLher
grou comanies. And Lhis is
|usL Lhe Li ol Lhe iceEerg.
We could have udaLed Lhe
case EuL chose noL Lo lor a
varieLy ol signilicanL reasons.
!n order Lo redicL Lhe luLure,
one musL lirsL undersLand Lhe
asL. We resenL here a vealLh
ol daLa. aculLy, sLudenLs and
managers reading Lhe case can
lace Lhis daLa in Loday`s
conLexL and evenLs Lo
undersLand Lhe decision-
making rocess and iLs imacL.
Jhis sLudy Lhus allovs a
richness ol deEaLe noL alvays
ossiEle. Second, urely in
Lerms ol a case conLesL, such a
case lends iLsell Lo oE|ecLiviLy
in |udging. And in Lhe end, as
ve said earlier, good manage-
menL educaLion is all aEouL
heling sLudenLs come Lo gris
viLh generic managemenL
issues. Jhe Ba|a| AuLo case is
noL only mulLi-layered EuL a
classic examle ol Lhe siLuaLion
many !ndian comanies lace
Loday.
2
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Edi to|, I|e Sa|t Varae|.
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eac|.
01 urce|starc|r cl t|e |ssue
02 |c|c cl t|e sc|ut|cr
03 ccp|eteress cl t|e sc|ut|cr
01 v|ac|||t] cl t|e sc|ut|cr
05 p|esertat|cr
|c| ar] cue||es, p|ease ccrtact.
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B / J / J / u I 0 L I D |, G|:c |rcmc|, Sumcn:rc G|s|c| c SuJ.. uJ||rcc
o rep|ace a |egeud is uever easy. To rep|ace a |egeud
wheu the |egacy ueeds a major overhau| is eveu more
difficu|t. Aud that was the cha||euge faciug Rajiv 8ajaj
iu 1998, iu the process of gradua||y taliug over the
leadershi resonsiEiliLies aL
Ba|a| AuLo lrom his laLher,
Rahul Ba|a|.
WiLh iLs large sales Lurnover
(Rs3En in Y), vide roducL
svee, high roliLaEiliLy, Lhe
cash rich Ba|a| AuLo dominaLed
Lhe !ndian markeL lor 2- and
3- vheeler vehicles. !n l8
Ba|a| AuLo vas ranked !ndia`s
lilLh mosL valuaEle comany.
l
!nLernaLionally, iL vas Lhe
vorld`s largesL scooLer roducer
and Lhe lourLh largesL 2-vheeler
manulacLurer, Eehind ]aan`s
Honda, Yamaha and Suzuki.
Jhe comany`s Euilder, Rahul
Ba|a|, en|oyed Lhe reuLaLion ol
Eeing one ol !ndia`s mosL
admired Eusiness leaders. uch
more Lhan a mere indusLrialisL,
hovever, he vas a naLional
celeEriLy: an ouLsoken iconoclasL
vho vas regularly in Lhe nevs
noL only as a sokesman lor
!ndian indusLry in general EuL
also lor his olLen lorvard Lhinking
and ElunL vievs on a varieLy ol
social and economic issues LhaL
allecLed Lhe counLry.
Rahul Ba|a| had inheriLed a
young comany in a roLecLed
markeL and overseen iLs grovLh
over a eriod ol 40 years inLo a
large and roliLaEle comany. !n
Lhe mid-l80s hovever Lhe
environmenL changed as Lhe
governmenL liEeralized Lhe
2-vheeler indusLry ermiLLing
gloEal gianLs Lo seL u sho in
!ndia. Ba|a| AuLo`s markeL share
iniLially rose sLeadily desiLe
comeLiLion Lo 4.3% in l4
EuL gradually declined LherealLer
Lo aEouL 40% Ey l8.
!n resonse Lo Lhis erosion ol
markeL share, Lhe comany vas
changing lrom a locus on a
sLandardized roducL Lo a vide
range ol models and varianLs
designed Lo aeal Lo a Eroad
cross-secLion ol Lhe markeL. !L had
recognized iLs roElems on
roducL, EoLh in Lerms ol
leaLures and in Lerms ol qualiLy
execLaLions ol an increasingly
demanding cusLomer.
BoLh ol Lhese vere Eeing
addressed and Lhe comany vas
in Lhe rocess ol recasLing iLsell.
A Ba|a| had alvays Eeen aL
Lhe helm ol allairs aL Ba|a| AuLo.
Rahul had carried Lhe Lorch lor 35
years. Jhose vho knev him
vell, knev Lhe comany meanL
everyLhing Lo him. BuL he lelL iL
vas nov Lime Lo hand over Lhe
EaLon. Rahul vas clear LhaL his
elder son vas Lhe erson vho
should Ee groomed as his
successor.
Ra|iv had sLudied mechanical
engineering and graduaLed aL Lhe
Lo ol his class. Besides, he had
grovn u in Lhe Ba|a| AuLo
colony, having lived Lhere ever
since he vas Eorn. He vas young,
ErighL and hungry: everyLhing
LhaL Rahul had Eeen vhen he
sLeed u Lo Lhe laLe in l68.
Ra|iv came aEoard as a
Ceneral anager viLh res-
onsiEiliLy lor Nev roducL
evelomenL and rogressed
quickly Lo Eecome Vice residenL
roducLs (in charge ol roducL
and manulacLuring engineering,
and markeLing luncLions).
Rahul remained Lhe 'Boss` as
Lhe Chairman and anaging
irecLor. BuL everyone vas quiLe
clear in l8 LhaL Ra|iv vas Lhe
de lacLo C. His managemenL
l
us|n.ss TJc,, 'Jhe BJ 500`, 7 SeLemEer l8
3
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|, G|:c |rcmc|, Sumcn:rc G|s|c| c SuJ.. uJ||rcc
Leam consisLed ol exerienced
sLalvarLs vho had Lyically Eeen
viLh Lhe comany lor decades
Lemered viLh some nev young
laces cherry-icked lor Lheir
secialisL skills. His younger
EroLher, San|iv Ba|a|, vas a
Ceneral anager in Lhe linance
and maLerials areas and had Eeen
an undersLudy Lo Lhe C since
he had reLurned viLh an BA
lrom Harvard (see annexure 0l:
organizaLion charL).
When Ra|iv Look on Lhe
resonsiEiliLy ol searheading
Lhe comany`s roducLs and
markeL LhrusLs in l6, aL Lhe age
ol 32, he lound a lumEering
gianL. His rioriLies included
accessing nev Lechnologies,
inLroducing nev models, Euilding
a resence in Lhe raidly groving
moLorcycle markeL, creaLing a
markeLing culLure, locussing on
qualiLy, imroving Lhe suly
chain, revaming manulacLuring
racLices, heling Lhe nev
managers inLegraLe inLo a
conservaLive cororaLe culLure
and more. Being meLhodical Ey
naLure, Ra|iv sLarLed vorking on
all Lhese issues one Ey one. He sav
Lhe ma|or challenges lacing Lhe
comany as:
share of customers miud:
Jhis is linked Lo innovaLion,
EuL noL necessarily Lechnical
innovaLion. CusLomer maLuriLy
has changed dramaLically in a
very shorL eriod ol Lime. e-Loo
roducLs don`L vork.`
product differeutiatiou: We
have Lo develo roducL
develomenL skills. roducL
dillerenLiaLion has Eecome more
imorLanL. arLicularly vhere
everyone has access Lo similar
Lechnology.`
customer satisfactiou: very-
Lhing LhaL vas K in Lhe asL is
noL K Loday. We have Lo change
everyLhing Lo ensure cusLomer
saLislacLion.`
customer reteutiou: or
moLorcycles, Hero Honda is Lhe
EesL Erand, EuL iL has only 52%
cusLomer reLenLion.`
cost: We have Lo manage
Lhe cosL sLrucLure during Lhe
LransiLion.`
When asked aEouL his
amEiLions lor Lhe comany, he
said, y limiLed amEiLion is Lo
comleLe Lhe LransiLion ]Lo a nev
Ba|a| AuLoj.` !n order Lo lullil Lhis
amEiLion, some key issues and
quesLions needed Lo Ee addressed:
O1 vhaL are Lhe rimary
sLrengLhs and veaknesses ol
Ba|a| AuLo !s Lhe comany
vorking on Lhe righL rioriLies
WhaL, il anyLhing, are Lhey
missing
O2 hov imorLanL is gloEal
leadershi oes Ba|a| AuLo`s
mission sLaLemenL need
udaLing
O3 vould iL Ee EeLLer Lo ellecL
changes in one area aL a Lime, or
Lo do vhaL Rahul and Ra|iv have
done Ey vorking on several areas
simulLaneously
O4 vhaL is Lhe luLure ol Ba|a|
AuLo
the bajaj group
Jhe Ba|a| name vas synony-
mous viLh Lhe lreedom sLruggle
in !ndia. ]amnalal Ba|a|, a
Eusinessman lrom Lhe very
LradiLional arvari communiLy,
acceLed ahaLma Candhi as
his leader and senL mosL ol his
Lime in assisLing Candhi and
Lhe Congress arLy in vorking
Lovards achieving !ndia`s
indeendence lrom Lhe BriLish.
His loyalLy and commiLmenL
vere exemlary and Candhi once
vroLe Lo anoLher rominenL
lollover, Chanshyam as Birla,
LhaL .Lhere vas no vork in
vhich ! did noL receive ]amnalal`s
lullesL co-oeraLion in Eody,
mind and vealLh.` Jhis arLially
exlains vhy ohandas
Karamchand Candhi, Jhe aLher
ol Lhe NaLion, olLen relerred Lo
]amnalal as his lilLh son.
]amnalal rose Lo Eecome Lhe
Lreasurer ol Lhe Congress arLy
and sLayed in Lhis osiLion
unLil his demise in l42. His
emloyees and oLher lamily
memEers including his older
u|c: ucs 0K |n :|. cs: |s n: 0K :Jc,, u. n..J :
C|/|CE .t.,:||n : .nsur. CuSI0VER S/I|S|/CI|0|
1
son Kamalnayan managed Lhe
lamily Eusiness ol coLLon gin-
ning and ressing as vell as
indigenous Eanking.
By Lhe Lime ol his demise, Lhe
Eusiness had exanded inLo Lhe
sugar indusLry and reson-
siEiliLy lor managing iL shilLed
Lo Kamalnayan (assisLed Ey his
younger EroLher Ramakrishna,
a lamily Lree is shovn in
annexure 02).
Jhese vere LurEulenL Limes
viLh Lhe end ol Lhe Second World
War and Lhe rearaLions lor
!ndian indeendence in l47.
Jhe Ba|a| Crou reacLed Lo Lhe
oorLuniLies made availaEle
Ey Lhe markeL and exanded
Lhe lamily Eusiness inLo
Lhe manulacLure ol scooLers,
3-vheelers, sugar, elecLrical
lams, casLing sLeel and oLher
roducLs Ey Lhe l60s.
!n l Ba|a| AuLo vas Lhe
largesL comany in Lhe Ba|a|
Crou. Comrising ol 26
comanies, Lhe grou`s ma|or
manulacLuring acLiviLies,
aarL lrom 2- and 3-vheelers,
vere secial sLeels, consumer
elecLricals and sugar. Crou
sales in Y vere Rs62En.
JransacLions EeLveen grou
comanies vere conducLed on an
arm`s lengLh Easis. Hovever
overall sLraLegic lanning lor
grou comanies vas done in
discussion viLhin Lhe Ba|a|
lamily and inlormal conLacLs
EeLveen Lhe Lo managemenL
ol Lhe various comanies vere
common.
bajaj auto
Ba|a| AuLo LLd vas incororaLed
on 2 NovemEer l45 as a
Lrading comany and Eegan Lhe
imorL ol 2- and 3-vheelers
lrom !Laly`s iaggio & Co in
l48. !n l5 Lhe !ndian
governmenL granLed Ba|a| AuLo
a licence Lo manulacLure
scooLers and moLorized Lhree
vheeled vehicles. !n l60 iL
enLered inLo a Lechnical
collaEoraLion viLh iaggio under
vhich iL oELained Lhe righL Lo
manulacLure and markeL
iaggio`s V.sc Erand scooLers
and 3-vheelers in !ndia. Jhe
lirsL EaLch ol scooLers vas
assemEled in a Erick and Lin
shed in Kurla, umEai. Ba|a|
AuLo`s lirsL lull-lledged manu-
lacLuring laciliLy aL Akurdi,
l60km avay, vas inauguraLed
in l60-6l. JhaL year 3,5
scooLers rolled ouL ol Lhe lanL.
AlLer Lhe agreemenL viLh
iaggio exired in l7l, Ba|a|
AuLo conLinued Lo roduce and
sell vehicles EuL used Lhe cc
Erand name.
!n l75 iL enLered inLo
collaEoraLion viLh Lhe aha-
rashLra SLaLe CovernmenL Lo
assemEle scooLers lrom CK
(comleLely knocked dovn)
uniLs. !n l84 Lhe governmenL
linally avarded Ba|a| AuLo a
licence Lo exand and a l,000-
acre lanL aL Walu| Eegan
commercial roducLion Len
monLhs laLer. !n early l8 vork
Eegan on a Rs3.l5En lanL, on
a 200-acre loL aL Chakan near
une, vhich vas scheduled Lo go
on-sLream Ey mid-l. Ba|a|
AuLo`s l.mn vehicles er year
caaciLy vas execLed Lo Louch
2.5mn Ey Lhe year 2000.
roducLion aL Chakan vould
increase in hased slaEs ol
200,000 uniLs according Lo
markeL needs. Jhe comany
roosed Lo send anoLher
Rs3.65En EeLveen l7-2000
on imroving Lhe older lanLs. A
Eroad linancial summary ol Ba|a|
AuLo is rovided in annexure 03.
or Lhe lirsL LvenLy years ol
iLs hisLory, viLh iLs roducLs in
greaL demand, Ba|a| AuLo did noL
leel Lhe need Lo inLroduce any nev
roducLs EuL merely Linkered
viLh Lhe old V.sc design. Ba|a|
AuLo roduced iLs lirsL moLor-
cycle in l8l.
!n l86 iL Eegan making a
]aanese-designed moLorcycle in
5
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|njrmc| cn:cc:s |.:u..n :|. I0| V/|/CEVE|I
j :|. tcr|us cmcn|.s u.r. C0VV0|
Lechnical collaEoraLion viLh
Kavasaki Heavy !ndusLries. A
scooLereLLe vas inLroduced in
l0, Lhe cc Sunn,.
rahu| bajaj: the mau
aud his compauy
Kamalnayan`s son Rahul enLered
Lhe lamily Eusiness in Lhe l60s
and |oined Ba|a| AuLo. He grev
raidly viLhin Lhe comany Lo
Eecome anaging irecLor in
l70 and aL Lhe age ol 34 Look
on Lhe manLle ol Chairman viLh
his laLher`s demise in l72.
As Lhe oldesL ol live cousins
(sons ol Kamalnayan and
Ramakrishna), Rahul had alvays
Eeen resecLed Ey Lhe oLhers.
!niLially, resecL lloved lrom
his Eeing Lhe oldesL ol his
generaLion in a very LradiLional
lamily. !n Lime Lhis changed inLo
resecL lor a very comeLenL
Eusinessman and a senior
memEer ol Lhe lamily, vho
venL ouL ol his vay Lo ensure
LhaL Lhe lamily sLayed LogeLher
Lhrough Lhick and Lhin.
As a young Eoy, Rahul
aLLended Lhe eliLe CaLhedral &
]ohn Cannon School in BomEay.
Jhis vas a lar cry lrom Candhi`s
Ashram in Wardha, vhich vas
EuilL on Ba|a| lamily land and
vhere Lhe revious generaLion
had grovn u and maLured.
Rahul had Laken Lo siLLing in Lhe
driver`s seaL lrom his childhood
and in his ovn vords, .! vas
a school relecL, house caLain,
caLain ol Lhe Eoxing Leam and
vhaL noL.` He also Lyically
sLood lirsL in his class. Leading
lrom Lhe lronL exLended Lo
his Ereach viLh LradiLion, vhen
he decided Lo marry Rua, a
aharashLrian girl. Jhis vas noL
done in arvari lamilies! !n
anoLher move a Lyical ol Lhe
scions ol ma|or !ndian Eusiness
lamilies aL LhaL Lime, he also
aLLended Lhe Harvard Business
School Lo ick u an BA degree
(class ol '64).
WiLhin a lev years alLer
Lheir marriage, Rahul and Rua
decided Lo live viLhin Lhe lacLory
colony. Jhey could have lived
in une and Rahul vould have
driven ouL Lo Lhe lacLory and
Eack. BuL no, Rahul had Lo Ee in
Lhe middle ol iL all. !n lacL unLil
Lhe nev ollice Euilding vas
consLrucLed, Rahul`s ollice vas
inside Lhe lacLory viLh his
vindovs overlooking every
key acLiviLy.
or over 25 years, Rahul vas
ersonally in conLrol ol every
crucial area ol Lhe comany. He
knev Lhe linancials inside ouL
and vas alvays avare ol Lhe
daily roducLion ligures. Lov
cosL vas his manLra and cosL
conLrol his assion. As Jarun
as, irecLor Ceneral ol Lhe
ConlederaLion ol !ndian
!ndusLry once said, only arLly in
|esL, . even Lhough Ba|a| AuLo
vas highly rolessional, one
could noL send Rs5 viLhouL
Rahul`s ermission.`
When Rahul Look over
resonsiEiliLy lor Lhe comany
in l68 (even Eelore he
Eecame anaging irecLor in
l70), !ndia and iLs Congress
governmenL vere re-occuied
viLh socialisL oE|ecLives. Jhe
counLry vas run Eased on a live
year lorvard lanning rocess
and noLhing could Ee manulac-
Lured viLhouL a license lrom Lhe
governmenL. And voe EeLide
Lhe manulacLurer vho violaLed
Lhe condiLions ol his license
Ey roducing aEove Lhe licensed
caaciLy, even il Ey imroving
roducLiviLy and uLilizaLion ol
exisLing equimenLs.
Jhis lrusLraLed Rahul
immensely and he vas amazed
LhaL he vas noL alloved Lo
roduce more in an environ-
menL vhere Lhere vas a Len
year vaiLing eriod lor a Ba|a|
scooLer. RellecLing on LhaL
eriod, Rahul once said,
y Elood used Lo Eoil. Jhe
counLry needed 2-vheelers.
jr t.r 25 ,.crs, nc|u| ucs |ERS0|/LLY |n C0|IR0L
j .t.r, CRuC|/L /RE/ j :|. cmcn,
o
L0W C0SI ucs ||s V/|IR/ cnJ
C0SI C0|IR0L ||s |/SS|0|
Jhere vas a Len year delivery
eriod lor Ba|a| scooLers. And !
vas noL alloved Lo exand. WhaL
kind ol Socialism is LhaL`
Jhe Ba|a| lamily had layed
an imorLanL role in Lhe lreedom
sLruggle and EuilL consideraEle
goodvill among Lhe ranks ol Lhe
oliLical leadershi ol Lhe l40s.
Jhis reduced over Lime and Easi-
cally ended vhen Rahul`s laLher
Kamalnayan sided againsL !ndira
Candhi during Lhe Congress
arLy`s sliL in l6. Rahul`s
vievs on oliLical access vere:
y lamily never had Lhe kind
ol conLacLs you are Lalking aEouL.
We vere very much in Lhe
lreedom sLruggle, EuL ve never
used conLacLs lor our Eusiness
uroses. ayEe some oLhers
have.`
ven il giving money could
have EoughL any licenses, ! can
caLegorically say ve did noL give
any inisLers or any Senior
BureaucraL a single enny Lo geL
a license.`
! knov hov dilliculL iL can geL
Lo chase someone in elhi lor a
license. Jhen some lool delays Lhe
vhole ro|ecL Ey rocrasLinaLing,
Eecause he vanLs someLhing lor
himsell.EuL Lhank goodness !
vas never acLually enalized
Lhough ! vas quoLed olLen enough
lor saying LhaL ! vas ready Lo go
Lo |ail lor excess roducLion |usL
as EoLh my arenLs had lor Lhe
lreedom sLruggle.`
esiLe Lhe lrusLraLions ol
managing in Lhe 'License Ra|`,
Rahul and Ba|a| AuLo had done
vell. roducLion and sales rose
lrom 2l,000 uniLs and Rs72mn
in l68 Lo 5l0,000 uniLs and
Rs5,528mn in l88. Jhis vas
accomlished Lhrough a commiL-
menL Lo roviding a sLandar-
dized roducL Lo Lhe consumer
aL a rice LhaL alloved a healLhy
margin. Jhe Ba|a| scooLer `s
oulariLy alloved Lhe comany
Lo creaLe caaciLy Eased uon
assured demand and long ro-
ducLion runs vhich, along viLh
a consLanL locus on cosLs, earned
high roliLs lor Lhe comany.
the fai|ure of success
Jhe environmenL changed in
Lhe mid-l80s, vhen Lhe
]aanese manulacLurers sLarLed
nosing around !ndia looking lor
ossiEle arLners. Jhe Honda
oLor Comany seL u KineLic
Honda viLh Lhe irodias Lo
manulacLure scooLers, and Hero
Honda viLh Lhe un|al lamily
Lo manulacLure moLorcycles.
Around Lhe same Lime, Suzuki
arLnered viLh Lhe JVS Crou Lo
seL u JVS Suzuki, Yamaha viLh
scorLs Lo make moLorcycles and
iaggio viLh Lhe Singhanias in
LL Lo make scooLers.
CaaciLy consLrainLs held
Eack Lhe nev enLranLs lor a vhile
EuL Ey l0 Lhe nevcomers had
esLaElished Lhemselves and vere
ready Lo ram-u roducLion and
Lake on Ba|a| AuLo. Jhey had
access Lo nev Lechnologies and
u-Lo-daLe models courLesy Lheir
loreign arLners.
Ba|a| AuLo on Lhe oLher hand
had limiLed R& and no
arLners Lo access lor nev
models or Lechnologies. Jhe
comany had senL iLs Lime
locussing on conLinuous re-
ducLion ol roducLion cosLs, EuL
Lhis vas no longer going Lo Ee
enough. WiLh Lhe assage ol Lime,
comeLiLion Eecame inLense and
Lhe markeL vas llooded viLh
increasing numEers ol models
and varianLs. Jhis conLriEuLed
Lo a declining markeL share lor
Ba|a| AuLo in Lhe key scooLer
and 3-vheeler segmenLs righL
Lhrough Lo Lhe laLe l0s.
!n ay l8, alLer announ-
cing Lhe l7-8 resulLs lor Ba|a|
AuLo, Rahul vas aL Lhe receiving
end ol a numEer ol quesLions lrom
a anel ol Eusiness |ournalisLs.
7
u. D|D |0I C|VE cn, M|n|s:.rs c
S||CLE |E||Y : .: c L|CE|SE
L0|C |R0DuCI|0| run, c|n u|:| c cns:cn:
|0CuS n C0SI, .crn.J ||| |R0||IS
Jhese vere some ol his resonses:
ou the |arge cash reserves of
the compauy: !`ll kee Lhe
money viLh Lhe comany, in case
ol an emergency.! have given
enough Lo my shareholders in Lhe
asL. ! am noL in Lhe Eusiness lor
chariLy.Can you name lour
comanies vho have gone in lor
acquisiLions and are doing vell.
! can name many more vho are
dovn in Lhe dums.We are a
locussed comany.`
ou the |oss of marlet share
over the years: !l Lhe
comeLiLion sLarLs lrom a zero
Ease, Lhey are Eound Lo geL some
markeL share.Live and leL live,
LhaL`s my hilosohy.`
!n l8 Ba|a| AuLo dominaL-
ed Lhe !ndian 2- and 3-vheeler
markeL. None ol iLs comeLiLors
came close Lo maLching iLs
Loline or EoLLomline. Jhe six
layers lisLed Eelov conLrolled
around 0% ol Lhe 2-vheeler
markeL. Because ol iLs large
volumes, Lhe smallesL dro in
Ba|a| AuLo`s markeL share Eene-
liLed oLher layers lavishly. A
l0% dro in Ba|a| AuLo`s scooLer
sales in Y2, lor examle,
LranslaLed inLo a 8% grovLh lor
JVS Suzuki`s 2-vheeler sales and
l4% lor KineLic Honda scooLer
sales in a year vhen Lhe overall
scooLer segmenL grev Ey 0.8%.
esiLe iLs overvhelming
numEers, like Lhe serraLed edge
ol a voodcuLLer`s sav, Ba|a|
AuLo`s share ol Lhe !ndian 2-
and 3-vheeler markeL sav
signilicanL svings. Jhe sharesL
nick ol Lhe sav`s edge vas in
l85 vhen markeL share
droed Lo 33%.
Ba|a| AuLo climEed u Lhe
edge ol Lhe sav Ey adding
caaciLy aL Lhe Walu| lanL and
eing u manulacLuring
elliciencies aL iLs Akurdi lanL,
inLroducing a coule ol roducLs
descriEed as old vine in a noL-
so-nev EoLLle`, and alying a
sharer locus on markeLing and
disLriEuLion. arkeL share in l4
eaked aL 4.3% ol a much larger
ie. (By Lhis Lime, several nev
enLranLs, including mosL ol Lhe
EiggesL names in Lhe inLer-
naLional 2-vheeler Eusiness, had
8
bajaj autos market share
all segments 38.9 40.5 44.5 46.0 48.6 49.3 49.0 47.9 45.3 43.8 39.9 36.9
scooter 64.8 64.5 69.1 70.45 71.71 74.87 75.86 76.33 71.90 73.03 73.00 73.00
moter-cycles 26.9 27.8 31.1 29.47 30.53 28.38 28.99 26.94 26.23 21.15 21.00 20.50
moped 6.4 7.1 9.4 11.06 14.13 14.93 14.74 8.47 0.51 0.00 0.00 0.00
3-wheelers 83.6 82.1 84.4 87.12 94.12 96.29 91.28 87.24 88.73 88.86 89.00 87.00
source: AIAM, company annual reports
FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY 91 FY 90 FY 89 FY 88 FY 99 FY 98
leading 2- and 3- wheeler companies in India - FY 98
bajaj auto 1,333,798 35,132 4,626
escorts 191,868 12,830* 1,298*
hero honda 407,546 11,607 766
tvs suzuki 576,392 10,399 688
lml 308,456 7,538 203
kinetic honda 113,762 3,582 22
source: company reports, AIAM *combined balance sheet
sales - volume sales - RsMn PAT - RsMn
seL u Lheir manulacLuring
laciliLies in !ndia). Jhere vas no
Lime Lo o chamagne corks,
hovever, lor as Lhe LaEle aEove
shovs, in l8 once again Ba|a|
AuLo sav iLs markeL share dro:
lrom 44.5% in Y7, Lo 40.5% in
Y8, and 38.% in Y.
!n l8 Ba|a| AuLo aeared
Lo Ee more or less Eack Lo iLs
l8 osiLion. r vas iL Jhe
environmenL in l8 vas lar
more comlicaLed Lhan in l8.
gloEal layers had grased Lhe
nuances ol Lhe !ndian markeL
and vere vell enLrenched. Honda
vas gearing u Lo conLesL Ba|a|
AuLo`s dominance ol Lhe scooLer
segmenL, and in Lhe lasL groving
moLorcycle segmenL iL had
esLaElished a clear leadershi
viLh iLs arLner, Lhe Hero grou.
iaggio, Lhrough Creaves, vas
niEEling avay aL Lhe 3-vheeler
markeL Ba|a| AuLo`s cash cov.
JVS Suzuki had esLaElished a lead
in Lhe moed segmenL.
inLense comeLiLion had
lragmenLed Lhe !ndian 2-vheeler
markeL inLo many segmenLs. !L
vas no longer neaLly divided Lo
scooLers, moeds and moLor-
cycles. AarL lrom hyErids such
as sLe-Lhrus and scooLereLLes, Lhe
leaLures and rices ol scooLers,
moLorcycles and moeds lre-
quenLly overlaed.
or Lhe managers aL Ba|a|
AuLo, Lhese Lvo lacLors com-
Eined Lo ose a erlexing
quesLion: vhaL roducLs should
iL make in Lhe nexL round ol
caaciLy exansion il iL vere Lo
remain !ndia`s leading 2- and 3-
vheeler comany
n Lhe surlace, Ba|a| AuLo
aeared Lo Ee conLinuing iLs
sLruggle Lo mainLain markeL
share. BeneaLh Lhe surlace, some
serious changes vere occurring.
fightiug for its |uuch
Rahul`s older son Ra|iv sLudied
manulacLuring engineering aL
une`s College ol ngineering,
sLanding lirsL in his class. He Lhen
venL Lo Warvick in Lhe UK Lo
sLudy engineering Eelore reLur-
ning Lo Lhe comany in ll viLh
resonsiEiliLy lor seLLing u
and managing a Nev roducL
evelomenL Crou. His desig-
naLion vas Ceneral anager.
His laLher`s Eriel vas clear: Ba|a|
AuLo had Lo have a roducL
orLlolio Lo suiL every need. His
only caveaL, !l your cusLomer
vanLs sLainless sLeel, don`L give
him laLinum.`
Jhe Leam Eegan iLs mission
Ey scouLing Lhe vorld lor Lech-
nology EouLiques. ver a dozen
agreemenLs vere signed over
Lhe nexL lev years. or examle,
Ba|a| AuLo Lied u viLh AusLria`s
AVL Lo imrove vehicle
emissions and luel economy
and Lo develo a direcL luel
in|ecLion sysLem lor 2-sLroke
engines. CollaEoraLion deals
vere sLruck viLh AusLralia`s
rEiLal ngine Comany lor
comEusLion sysLems, viLh !Laly`s
Cagiva oLor Comany lor
scooLers and USA`s Unique
oEiliLy lor olluLion-lree
elecLric overed scooLers.
Jhe ma|oriLy ol Lhe key Lie
us vere viLh ]aanese lirms:
Joyko R& lor scooLereLLes and
moeds, Kavasaki Heavy
!ndusLries lor moLorcycles, and
KuEoLa lor diesel engines lor 3-
vheelers. AL Lhe AuLo air in
elhi in ]anuary l8, Ba|a|
AuLo roudly announced LhaL
sevenLeen nev models vould
hiL Lhe !ndian markeL viLhin Lhe
nexL 24 monLhs.
Jhe nev roducLs marked
Ba|a| AuLo`s successlul aLLemLs
Lo viden iLs cusLomer Ease and
also a nev emhasis on imro-
ving Lhe insides ol iLs machines.
!n Lhe lirsL LvenLy years ol iLs
exisLence, Ba|a| AuLo had sLuE-
Eornly relused Lo ugrade iLs
models. Jhe C|.:c|, vhich had
rovided and conLinued Lo
rovide 60% ol Ba|a| AuLo`s
scooLer sales, didn`L even have an
|j ,ur cus:m.r W/|IS SI/||LESS SIEEL,
Jn: C|VE ||m |L/I||uV
9
|EW rJuc:s mcr|.J c SuCCESS|uL
/IIEV|I : W|DE| :|. cus:m.r |cs.
r&d expenditure of major Indian 2-wheeler companies FY98
bajaj auto 241.3 0.9
tvs suzuki 154.5 1.5
hero honda 32.8 0.3
kinetic honda 32.8 0.3
source: company reports
% of Net sales
bajaj autos sales FY98
scooters 776,676 64.5
motorcycles 313,068 27.8
mopeds 51,938 7.1
3-wheelers 192,116 82.1
total 1,333,798 40.5
source: Bajaj Auto
units % of industry total
RsMn
elecLric igniLion EuL had Lo Ee
kick-sLarLed. AL Lhe same Lime,
iLs 2-sLroke engine had an
emission erlormance LhaL,
vhile acceLaEle in Lhe !ndian
conLexL, vould Ee seen as highly
olluLing lor Lhe environmenL
according Lo inLernaLional
sLandards. (Hovever, Ey Lhe laLe
l0s, !ndia seL emission norms
lor 2-vheelers vhich vere LighL-
er Lhan in many oLher counLries.)
LiLLle could Ee done aEouL
Lhe old 2-sLroke engines EuL Lhe
nev roducLs diselled Lhis ass
image. According Lo Ra|iv Ba|a|,
Lhe nev models vere designed
viLh Lhree challenges in mind: Lhe
consumer, Lhe environmenL and
Lhe comeLiLion in LhaL order.
Jhe consumer is increasingly
demanding a vehicle vhich can
rovide him viLh ride and |oy
along viLh Lhe comlorLs ol easy
riding, luel elliciency and over.`
Jhe Classic SL and Bravo
scooLers, Lherelore, rovided
suerior sLyling Eacked Ey
imroved susension and Eraking
sysLems. Jhe SiriL, aimed aL Lhe
urEan Leenager, vas Lhe lirsL
2-seed scooLereLLe in Lhe markeL
viLh greaLer luel elliciency and
more over Lhan a variomaLic.
Jhe Legend, a l50cc scooLer,
shoved LhaL Ba|a| AuLo had
linally managed Lo develo
in-house a 4-sLroke engine,
vhich vas luel ellicienL and
could meeL emission norms lor
Lhe year 2000. Jhis alloved iL Lo
caLch u viLh Honda, vhere iLs
vorldvide success vas rooLed in
iLs classic 4-sLroke engine.
Jhe nev models acLed like
adrenaline shoLs. Jhe comany
claimed LhaL Ba|a| Lechnology
in Lhe 50cc Lo l50cc 2-vheeler
caLegory lor eLrol engines,
geared and ungeared Lrans-
mission, and monocoque and
LuEular sLrucLures could comeLe
viLh Lhe EesL in Lhe vorld.` Jhere
vas nov a leeling LhaL Lhe
comany had Eeen liEeraLed.
Some call us veak Eecause in
Lhe aEsence ol a |oinL venLure,
ve do noL have access Lo a Lrans-
naLional`s Lechnology,` said Rahul
Ba|a|. ! Eelieve iL is a sLrengLh
since iL has given us lreedom ol
acLion. reedom Lo sho lor
Lechnology. reedom Lo Eecome
an indeendenL mulLinaLional.`
mauufacturiug 8
supp|y chaiu
mauagemeut
mauufacturiug:
!n Y8 Ba|a| AuLo roduced
over 4,400 vehicles a day in Lvo
shilLs, six days a veek in soL-
lessly clean lanLs. 65% ol Lhese
vere scooLers. Coing Ey Lhe
currenL inLer segmenL shilLs, Lhe
scooLer segmenL`s conLriEuLion
in 2003 vas likely Lo Ee much
smaller. Jrends in !ndia had Eegun
Lo mirror inLernaLional ones.
Ba|a| AuLo had Eeen Lhe lasL Lo
enLer Lhe moLorcycle race. Nov
iLs anLennae vere more sensiLive
Lo Lhe vinds ol change. We are
noL a scooLer comany, ve make
roducLs LhaL sell,` said Ra|iv
Ba|a|. When Lhe markeL vanLed
scooLers, ve made scooLers.
When Lhe markeL vanLs moLor-
cycles, ve vill make moLor-
cycles. ur roducLion laciliLies
10
are llexiEle.`
Jo lend seed and agiliLy
Lo iLs large and exanding man-
ulacLuring oeraLion, Ba|a| AuLo
insLiLuLed a arLiciaLive and
unamEiguous EoLLom-u a-
roach` in Lhe vords ol one ol iLs
managers. n Lhe sho lloor,
vorkmen and secLion managers
vere groued inLo cells. Jhese
cell memEers vere guided Ey a
rincile duEEed visual sell-
managemenL ol qualiLy and
roducLiviLy lor conLinuous
imrovemenL`. !L vas an elaEo-
raLe name lor a simle sysLem.
Jhere vere Len charLs (Vl Vl0)
each lor every asecL ol cell vork-
ing lrom man-machine Ealancing
and maLerial handling Lo
revenLive mainLenance and
rocess conLrol. Jo ensure LhaL all
dearLmenLs had access Lo Lhe
righL inlormaLion aL Lhe righL
Lime and aL Lhe required oinL, a
igiLal quimenL Alha 8400
hosL comuLer linked 400 con-
currenL users aL Lhe Lhree lanLs
as vell as suliers, dealers and
overseas disLriEuLors.
Cearing u roducLion lrom
Lvelve models in l3 Lo 2 Ey
l vas a challenge and Lhe
man in Lhe hoL seaL vas Arvind
CuLa (52), head ol manulac-
Luring engineering, vho |oined
Ba|a| AuLo in ll lrom Jelco.
As iL is a maLLer ol survival, ve
vill ca|ole, comromise and coax
Lo geL Lhere,` said Lhe ragmaLisL.
His immediaLe headache
vas Looling. Ba|a| AuLo needed
700-800 nev Lools according Lo
a secilic delivery schedule Lo
manulacLure Lhe nev models
EuL no comany in !ndia had Lhe
design laciliLies Lo make Lhem
exceL Jelco. Suliers also
needed hel viLh Lheir Looling
and deended on Ba|a| AuLo Lo
rovide iL. We vere doing 80%
ol Lhis nev Looling ourselves. !L
vas a Lremendous vorkload EuL
Lhere vas no oLion. Keeing
knov-hov in conLrol vas also a
roElem. BuL ve have Lo lind a
vay ouL ol Lhis roElem. We can`L
Ee EoLLlenecked,` declared CuLa.
Ba|a| AuLo`s soluLion vas
mulLi-ronged. Some ol Lhe
Looling vas larmed ouL. esigners
vere asked Lo go Eack Lo Lheir
draving Eoards and come u
viLh manulacLuring rocesses
LhaL called lor less Looling.
anover exansion and nev
CA comuLers led Lo a 30%
imrovemenL in Lool design
roducLiviLy. Ba|a| AuLo had
never senL so much on Looling.
!n Lhe asL, Lhe high cosL ol
Looling |usL vould noL have Eeen
acceLed,` noLed one manager.
ConsideraLion ol leasiEiliLy
and cosL counLer-Ealanced Lhe
need lor seed. JradiLionally Ba|a|
AuLo`s greaLesL comeLiLive advan-
Lage had Eeen iLs cosL sLrucLure and
as Lhe nev lines came u, managers
keL a LighL rein on Lhe urchase ol
nev machines. CuLa exlained.
Jhe nev roducLs vill Ee
comeLiLively riced Eecause ve
have Eeen very cosL ellecLive in
our equimenL Euying. verall,
ve`ve aid less Eecause ve`ve
EoughL lrom dillerenL manu-
lacLurers. We can do Lhis Eecause
ve have a sLrong inLegraLing
laciliLy in comarison Lo oLhers.
Lhers may have an advanLage
over ro|ecL Lime EuL Lhen ve are
Euilding in exerLise Lhrough Lhe
inLegraLion rocess. Hovever ve
sLill have Lo source criLical and key
machines lrom ouLside and LhaL
is a roElem. Yes, Lhis sLraLegy may
cosL Lhe comany more in Lhe long
run in Lerms ol Lime ve could
have handed iL over as a Lurnkey
|oE EuL Lhe LransiLion mighL have
Eeen dilliculL and Lhe cosLs vould
have Eeen very dillerenL.`
CuLa acknovledged hov-
ever LhaL LargeL daLes vere Lrailing.
WhaL should have Eeen done in
l6 vas Eeing done in l8.
According Lo inLernaLional
sLandards, comanies Ering ouL
a model in lour years. Some
comanies are excellenL and can
cs |: |s c V/IIER j SuRV|V/L, u. u||| C/J0LE,
C0V|R0V|SE cnJ C0// : .: :|.r.
11
cns|J.rc:|n j C0SI C0u|IER cnJ
|E/S|B|L|IY |c|cnc.J :|. n..J jr S|EED
Ering ouL a nev model in 2.5
years. or Lhe BeLa 3, iL Look us
close Lo live years. And Lhere vere
Eugs in Lhe roducL. Jhere vere
lailures in roducL LesLing and
ve need Lo send Lime on reduc-
ing Lhe cycle Lime.`
No-one in Ba|a| AuLo, and
Lhe markeLing dearLmenL ese-
cially, vanLed a reeaL ol Lhe
mid-l0s vhen Lhe comany
had remaLurely launched Lhe
S:r|J. and Lhe SX lnJurc vhich
laLer had Lo Ee hased ouL.
or Lhe roducL develomenL
rocess, Ba|a| AuLo had Eorroved
laLlorm conceL lrom Chrysler.
Ba|a| AuLo`s six laLlorms vere
comosed ol engineers lrom
roducL engineering, manulac-
Luring engineering, comonenL
develomenL, roducL manage-
menL and qualiLy assurance.
SimulLaneous and concurrenL
engineering conceLs vere
exLensively alied. Jhe Erain-
sLorming sessions olLen included
lirsL Lier suliers |.jr. a conceL
vas linalized.
supp|y chaiu:
AEouL 60% Ey value ol a Ba|a|
vehicle vas ouL-sourced. VirLually
no comonenLs vere imorLed
and 70% ol Ba|a| AuLo`s require-
menLs vere sourced lrom viLhin
Lhe sLaLe ol aharashLra. 20%
ol iLs requiremenLs vere single-
sourced and mosL comonenLs
vere rocured lrom Lhree or less
vendors. any suliers vere
eiLher comleLely or largely dedi-
caLed Lo Ba|a| AuLo. Comared
Lo iLs comeLiLors, Ba|a| AuLo`s
deendence on vendors vas
relaLively lov: over 0% ol Hero
Honda`s comonenLs, lor exam-
le, vere ouL-sourced.
Hovever, Ba|a| AuLo`s grovLh
vas signilicanLly consLrained Ey
Lhe Lime required Ey iLs vendors
Lo aEsorE Lechnology or achieve
signilicanL exansions in Lheir
lanLs. Jhis vas arLly Eecause ol
Ba|a| AuLo`s large volumes EuL
vas equally an inLrinsic elemenL
ol Lhe !ndian auLo ancillary
indusLry. nce a nev comonenL
vas designed Ey a 2- and
3-vheeler manulacLurer, Lhe
vendor required anyLhing lrom
lilLeen days lor a simle arL
Lo aEouL a year lor suE-assemElies
like Erakes and Lransmission
Eelore commercial roducLion
could sLarL. urLher, many vendors
vere small-scale oeraLions and
lamily-ovned vhich olLen
resLricLed large and lasL caaciLy
exansion due Lo lunds consL-
rainLs. osL vendors usually
sulied Lo only one comany
and exanded according Lo Lhe
requiremenL ol LhaL comany. !n
such a siLuaLion, Lhey Lended noL
Lo Euild surlus caaciLy.
Civen Lhese dilliculLies, Ba|a|
AuLo had goL used Lo deending
on iLsell: an aLLiLude vhich made
lor some signilicanL EeneliLs. !Ls
relaLively high level ol Eackvard
inLegraLion alloved iL Lo kee
rav maLerial cosLs Eelov Lhe
indusLry average. Jhe comany
EoughL rav maLerials in Eulk lor
iLsell and lor some ol iLs vendors.
Jhis ensured qualiLy comonenLs
aL lov cosLs. or mosL 2-vheeler
comanies, maLerial cosLs
accounLed lor aEouL 70% ol
oeraLing income. !n Ba|a| AuLo`s
case, iL vas 57% in Y8, Lhe
lovesL in Lhe indusLry.
AL Lhe same Lime, Lhe level ol
ouL-sourcing had Eegun Lo cree
uvards. According Lo Arvind
CuLa, We used Lo Lake l.
mandays Lo make a scooLer. Nov
Eecause ol ouL-sourcing, iL`s come
dovn Lo EeLveen l.4 and l.5
mandays. l Lhis reducLion, 40%
is lrom ollloading and 60% lrom
roducLiviLy increases.`
Jo imrove qualiLy, Ba|a|
AuLo also Eegan acLively assisLing
iLs suliers in linalising |oinL
venLures viLh counLerarLs in
]aan, !Laly, Jaivan and Sain.
anagers lelL LhaL Lhis had led Lo
a sLring ol uselul associaLions in
crucial areas such as die casLing,
||C| LEVEL j |cc|ucrJ ||IECR/I|0| c||u.J :|.
cs: j rcu mc:.r|c| : |. BEL0W :|. |nJus:r, /VER/CE
12
S|VuLI/|E0uS cnJ C0|CuRRE|I
.n|n..r|n |DE/S u.r. /||L|ED
olymer moulding, ride conLrol
sysLems and auLo elecLricals. We
need Lo Euild a vorld class
sulier Ease il ve vanL vorld
class vehicles,` said Rahul Ba|a|.
Changes in Ba|a| AuLo`s
vendor olicies vere noL alvays
lavouraEly received. uring Lhe
ll-3 recession, Ba|a| AuLo
had exLracLed several concessions
lrom iLs vendors, esecially Lhose
sulying lorgings.
rom Lhe mid-l0s Ba|a|
AuLo Eegan Lo Lrim Lhe numEer
ol vendors. or examle, Lhe
Akurdi ress sho used Lo have
28 suliers. Jhis vas sLream-
lined Lo seven in l8 and
vould Ee live Ey 2005. ever
suliers means Lheir volumes
increase and seL-u Lime reduces,`
exlained Ran|iL CuLa (56),
Vice residenL aLerials vho had
Eeen viLh Lhe comany since
l88 and vas reviously a
Ceneral anager aL aruLi
Udyog. Lover seL-u Limes mean
more uninLerruLed vork and less
qualiLy roElems.` BuL Lo geL Ba|a|
AuLo`s volume Eusiness, vendors
had Lo acceL valer Lhin margins.
maiutaiuiug cost
|eadership
ven as Ba|a| AuLo revved u Lhe
grovLh aLh, Lhe comany inLro-
duced secilic rogrammes in iLs
manulacLuring oeraLions Lo
glean cosL elliciencies. very Lask
in Lhe comany vas evaluaLed
on Lhe Easis ol Lhree arameLers:
Lime, qualiLy and cosL. Secilic
norms vere seL lor each arameLer
and had Lo Ee meL. anagers had
Lo LargeL and Lackle inelliciencies
in each area so LhaL overall cosLs
sLayed in check.
Civen Lhe sLrong resence
ol all Lhe 2-vheeler ma|ors ol
Lhe vorld in !ndia, all emloyees,
vorkmen and managers alike,
recognized and undersLood LhaL
lov cosL mass manulacLuring
vas a comeLiLive Lool,` said S
Ravikumar (4l), Senior anager
Business evelomenL vho
|oined Ba|a| AuLo in l84 alLer
Eeing a linancial accounLanL aL
nlield !ndia. Jhe ll-3
recession lurLher hammered in
Lhe message.
anover roducLiviLy
in Lerms ol numEer ol vehicles
er man-year imroved Ey
88% in Lhe decade l88-l8.
5,000 vorkers disaeared lrom
Lhe ayroll. Jhe remaining
l7,000 vorked a loL harder.
!deally Lhere should Ee ,000,`
said one manager. ever eole
made an imorLanL dillerence in
cosL and qualiLy. Jhe lacLory vas
a neaLer, cleaner and saler
vorking environmenL.`
!n ]une l8 Ba|a| AuLo
signed a 3.5 year agreemenL
viLh Lhe Shiv Sena-conLrolled
BharaLiya Kamgar Sena Union
vhereEy Lhe 6,l00 ermanenL
vorkers aL Lhe Akurdi lanL
vould geL an exLra Rs2,000
er monLh.
Jhe hike vould increase
laEour cosL Ey Rsl46.4mn
er year. Ba|a| AuLo also agreed
Lo ay a one Lime aymenL
ol Rs23,800 er vorker Eased
on his aLLendance EeLveen Aril
l7 and ay l8, vhich
vould cosL an addiLional
Rsl45mn. !n reLurn iL goL a 8%
Lo l0% roducLiviLy increase, a
commiLmenL Ey vorkers Lo
lollov Lhe cell manulacLuring
sysLem, and vork 440 minuLes
er shilL. !n !ndia, mosL agree-
menLs vere negoLiaLed lor Lhree-
year eriods. Jhe Walu| agree-
menL vas due in eEruary 2000.
Jhe managemenL acceLed
hovever LhaL rocesses could
Ee sLreLched only uLo a limiL,
esecially viLh a vider roducL
range. roducLion ol Lhe C|.:c|
vas so line-Luned alLer LhirLy
years LhaL Lhe 40 vorkers on iLs
assemEly didn`L have more Lhan
Lvo seconds lree EeLveen one
acLiviLy and Lhe nexL. or Lhe
Classic SL, Lhe Lime manage-
menL vas 5%. BuL Lhere vould
Ee no oorLuniLy Lo imrove on
LhaL 5% erlormance Eecause ol
changes in Lhe roducL.
lain vanilla cosL cuLLing
vas only one ol Lhe many vays
Ba|a| AuLo vas using Lo recover
losL ground. osL ol Lhe oLher
iniLiaLives gave Lhe hrase
vorking smarLer` an enLirely
nev dimension. Lover cosLs
13
u. n..J : Bu|LD c W0RLD CL/SS su||.r
|cs.,|j u. W/|I W0RLD CL/SS t.||c|.s
vere designed inLo nev models.
xLra leaLures vhich acLually
increased cosLs Ey Rsl00 vere
added Lo models vhere designers
lelL LhaL cusLomers vould
villingly ay Rsl,000 lor Lhem.
!n all Lhese examles, Lhe ay-
oll vas higher roliLaEiliLy.
!n Lhe luLure, cosL has Lo
Ee looked aL in a dillerenL vay,`
said Ra|iv Ba|a|. Jhe vrong
vay vas Lo Lell eole LhaL ve
vere cuLLing cosLs. eole vanL
Lo come Lo vork eager Lo vork.
BuL il in a meeLing ! say LhaL
Loday ! vanL Lo Lalk aEouL cosL
cuLLing, ! am sure Lhey vill do
Lheir EesL EuL Lhey vill noL Ee
moLivaLed. ! vill Ee Lalking in
isolaLion. Jhis is esecially Lrue
in an ovner-managed comany.
!neviLaEly Lhere vas a leeling
among execuLives LhaL Lhe
EeneliL ol cosL cuLLing vill go inLo
Lhe ovner`s ockeL. anagers
and vorkers also see cosL cuLLing
as a vay Lo ri Lhem oll and Lo
make Lhem vork harder.
uLside Lhe comany,
among vendors and cusLomers,
Lhe momenL you Lalk ol cosL
cuLLing, eole Lhink LhaL Lhe
roducL`s qualiLy has gone
dovn. Here in Ba|a| AuLo ve leel
LhaL cosL cuLLing is all aEouL
imroving qualiLy aL lover cosL.
JhaL`s hov roliLaEiliLy
imroves. JhaL`s hov cusLomers
kee coming Eack.`
anagers Look a Eack-Lo-
Easics aroach Lo Lhe relaLion-
shi EeLveen cosL, markeL rice
and roliL margin. Ba|a| AuLo`s
accounLanLs vere Lold Lo lorgeL
Lhe good old days vhen Lhe
comany had monoolized Lhe
markeL. Jhe sLarLing oinL vas
nov Lhe markeL, vhaL oLher
comanies vere doing, and Lhe
rices aL vhich Lhey ollered
Lheir roducLs. SuELracLing a re-
deLermined roliL margin lrom
Lhis, Lhe residual vas Lhe cosL aL
vhich Lhe roducL had Lo Ee
roduced. Jhe neL resulL vas Lhe
cheaesL scooLer aL Rs2l,6l7 LhaL
money could Euy. !n !ndia, Ba|a|
AuLo`s mosL exensive scooLer
cosL less Lo make Lhan LL`s
cheaesL models. !n Lhe UK, a
Ba|a| C|.:c| vas availaEle lor
l,l8 vis--vis l,880 lor
a iaggio JS and 2,245 lor
Honda Bali.
2
And even aL LhaL
rice, Ba|a| AuLo`s roliLs vere
Lhe highesL in Lhe Eusiness.
Some concern had Eegun Lo
Euild u hovever aEouL hov
long Lhe comany vould Ee aEle
Lo mainLain Lhis cosL sLrucLure.
According Lo Ra|iv Ba|a|`s calcu-
laLions, Ba|a| AuLo vould in Lhe
luLure need Lo send conside-
raEly more on roducL develo-
menL and manulacLuring
rocesses il iLs roducLs vere Lo
maLch cusLomers` execLaLions.
ore money needed Lo Ee senL
on Eranding and markeL research,
more money on hardvare, more
money on eole. !n l7 Ba|a|
AuLo recruiLed iLs lirsL head ol
HR (as oosed Lo ersonnel).
anover in manulac-
Luring engineering had gone u
lrom 60 Lo l00. AlmosL 40
ErighL sLars` had Eeen inducLed
inLo middle managemenL in Lhe
asL Lvo years. Salaries vere
going u. As Ra|iv Ba|a| oinLed
ouL, !l ve vanL Lo do all Lhis, iL
LoLally useLs Lhe cosL sLrucLure,
and vhen Lhe cosL sLrucLure
changes, Lhe key is Lo manage
change.`
2
Sc:.r|n n:.rnc:|nc|, SeLemEer l7
C0SI CuII||C |s c|| c|u: |V|R0V||C uc||:,
c: L0WER cs:, :|c:`s |u rj|:c||||:, |V|R0VES
11
net profit margin FY98
13.4% 12.7% 10.1% 6.6% 2.7% 0.6%
net profit margin = net profit as % to sales
source: business today, 7 september, 1998
Escorts Hero Honda TVS Suzuki LML Kinetic Honda Bajaj Auto
dealer and servicing network of 2-wheeler manufacturers
Bajaj Auto 380 1,200
TVS Suzuki 300 500
LML 380 820
Hero Honda 350 160
source: Merrill Lynch
dealers service centres
distributiou 8 after
sa|es service
As Ba|a| AuLo`s volumes and
markeL share climEed lrom
0.52mn and 36.% in Y88
Lo l.33mn and 40.5% in Y8,
Lhe comany virLually douEled
iLs dealer neLvork. !n l8
Lhere vere 380 dealers, l,200
sales and service ouLleLs (knovn
as SSs), l,800 service oinLs
(Ss) and l8,000 non-exclusive
local mechanic anels memEers.
As 2- and 3-vheelers had a long
running lile, iL vas essenLial
Lo have a vide neLvork ol ser-
vice sLaLions as also Lo ensure
easy availaEiliLy ol lov riced
genuine sares.
ealers lormed an imorLanL
link EeLveen manulacLurers and
cusLomers. Jhey vere a valuaEle
source ol inlormaLion on cusLo-
mer relerences. Jhey rovided
geograhic eneLraLion in rural,
semi-rural and urEan areas. Jhey
arranged crediL linance lor Lheir
clienLs, esecially in areas vhere
Lhe auLo linance comanies did
noL have a resence. Roughly 700
dealers indusLry vide accounLed
lor 80% ol auLo sales.
ResonsiEiliLy vas clearly
delined. ach 'Command Area`
vhich vas geograhically deLer-
mined had a dealer under Lhe
suervision ol Ba|a| AuLo`s sales
and service ollicers. ealers had
Lo ensure LhaL Lhe SSs and
Ss viLhin Lheir |urisdicLion
consisLenLly imroved Lheir levels
ol sales and cusLomer service.
Roughly 6,000 mechanics a
year, idenLilied via dealers,
vere Lrained annually aL Ba|a|
AuLo`s main Lraining cenLres in
elhi, une Bangalore and
KolkaLa and aL mini Lraining
cenLres esLaElished aL aEouL l00
dealershis. !n ll Ba|a| AuLo
reorganized iLs disLriEuLion
aLLern Ey esLaElishing nine
deoLs. Jhe inLroducLion ol
deoLs signilicanLly reduced Lhe
dealers` vorking caiLal require-
menLs Ey reducing Lhe average
Lime Laken Lo deliver vehicles.
Sales Lo dealers vere usually
made on a cash Easis. Hovever
during cerLain Limes ol Lhe year
such as ivali vhen demand
vas arLicularly sLrong, Ba|a|
AuLo rovided crediL Lo cerLain
dealers on a shorL Lerm Easis aL
commercial raLes ol inLeresL. !L did
noL oller discounLs or any oLher
lorm ol relerenLial ricing Lo any
ol iLs dealers on vehicle sales.
!n l7 Ba|a| AuLo kicked
oll a numEer ol markeLing
iniLiaLives. Jhese included a
cororaLe idenLiLy and dealer
develomenL rogram, sLan-
dardizaLion and modernizaLion
ol dealer neLvorks, assisLing
dealers Lo maximize reLurns
Lhrough EeLLer selling LacLics and
imroved alLer-sales elliciency.
Jhe nev Lheme vas Sales
Lhrough Service`. ealer
conlerences vere organized Lo
exchange ideas on successlul
selling sLraLegies and idenLily
areas ol imrovemenL.
arlier, alLer-sales vas LreaLed
as a cosL cenLre. !n l8 iL vas
Lurned around inLo a roliL
cenLre. Ba|a| AuLo Eegan vorking
viLh dealers Lo modernise Lheir
vorkshos in order Lo increase
roducLiviLy and reduce service
Lime. Jhe comany Eelieved LhaL
Lhis vould encourage cusLomers
Lo come Lo auLhorized vorkshos
and service cenLres vhere Lhey
vere ensured good service and
genuine sare arLs insLead ol
going Lo small unlicensed
mechanics. !n iLs Eid Lo exLend
iLs channels, Ba|a| AuLo roed
in selecL mechanics and Lrained
Lhem as anel emEers lor direcL
aroach Lo cusLomers.
Ba|a| AuLo`s exLensive ser-
vicing neLvork and sare arLs
delivery sysLem vas an imorLanL
comeLiLive advanLage. Any
15
Ba|a| model could Ee serviced and
reaired quickly virLually any-
vhere in !ndia. CusLomers could
access sare arLs quickly and
easily Lhrough an exLensive
neLvork ol vehicle dealers, service
dealers, Hamara Ba|a| ReLail
Shoes and consignee agenLs.
rders vere immediaLely ser-
viced Lhrough Lhree vare-houses.
Jhere vas also a 'asL Jrack`
vhich execuLed urgenL orders
viLhin 24 hours. Such services
vere ar-Licularly aLLracLive Lo
middle class cusLomers and Lhose
vanLing 'Sale` oLions.
the marlet 8
marletiug
1982. y markeLing dearL-
menL ! don`L require iL, ! have a
disaLch dearLmenL. ! don`L have
Lo go lrom house Lo house Lo sell,`
Rahul Ba|a|.
3
1991. WhaLever roducL or
service a comany ollers, iL musL
meeL Lhe cusLomer`s vanLs in Lhe
mosL saLislacLory manner. JhaL
should Ee Lhe aim ol Lhe
comany,` Rahul Ba|a|.
4
Jhe comany`s roducLs had
alvays Eeen vell received. !n
l80 Lhe ending Eooking lor
Ba|a| scooLers sLood aL l,l23,73l,
equivalenL Lo aEouL LhirLeen Limes
Lhe comany`s annual ouLuLs.
A decade laLer, Lhis ligure had
climEed Lo 2,l33,43.
By l7 a cusLomer could
Euy a Ba|a| scooLer oll Lhe shell.
Jhe vaiLing lisL evaoraLed arLly
Eecause ol a shar increase in
roducLion. !n l80 Ba|a| AuLo
roduced 88,65l 2-vheelers,
mosLly scooLers. !n l0 iL made
73l,523. By l7 Ba|a| AuLo`s
roducL range had exanded
and iL douEled roducLion Lo
l,43,l74 scooLers, moLor-cycles,
scooLereLLes and 3-vheelers.
Jhe narroving ga EeLveen
suly and demand didn`L lully
exlain Rahul Ba|a|`s U-Lurn over
a lilLeen year eriod as rellecLed
in Lhe quoLes aEove. ComeLiLion
vas Lhe driver ol change. !L
ruLhlessly Lranslormed Lhe rules
ol Lhe game.
Jhe scooLer king`s aLLiLude
Lovards markeLing reversed alLer
gloEal comeLiLors, noLaEly
Honda and Suzuki, seL u sho
in !ndia and challenged Ba|a|
AuLo`s hegemony. Jhe !ndian
auLo gianL`s adverLising rellecLed
Lhe change. Jhe unch line You
]usL Can`L BeaL A Ba|a|` sLarLed
raing a genLler diLLy, Hamara
('our`) Ba|a|`.
annual motorcycles growth rates (%)
-9 -12 24 39 24 21 16.5 24.7 25
source: DBS securities, Bajaj Auto
FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 2000E
Indian demand growth rate 2000E
projected 8% 25% 13% 25%
source: industry forecasts
motorcycles scooter mopeds/scooterettes 3-wheelers segment
annual scooter growth rates (%)
-15.4 -8.1 17 24 15.3 4.6 -4.5 3.3 8
source: Bajaj Auto
FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 2000E
1o
4
us|n.ss TJc,, ComeLing on CosL, 7 ]uly l7,
7l
3
Sc|.:,, Jhe ScooLer King in Jo Cear
As Ba|a| AuLo`s share ol Lhe
Rs8.6En !ndian 2- and 3-vheeler
markeL skidded, Lvo issues sLood:
in Lhe !ndian siLuaLion, could
Ba|a| AuLo Eecome vorld class,
and hov could Lhis Lranslorm-
aLion Lake lace
could or should Ba|a| AuLo
make a Eid Lo recover iLs earlier
avesome markeL share
Jhe Lvo issues vere inLri-
caLely linked. WiLhin !ndia, given
increasing comeLiLion, ineviL-
aEly success on Lhe second issue
deended on Lhe lirsL. And unless
Ba|a| AuLo could successlully
comeLe againsL vorld class
layers in !ndia, iL vould noL Ee
aEle Lo make much headvay
againsL Lhe same layers in
inLernaLional markeLs. !n any
case, Eecoming vorld class vas
erhas Lhe lasL mounLain lelL lor
Rahul Ba|a| ersonally and Ba|a|
AuLo, Lhe comany, Lo climE.
Clearly ma|or sLrucLural
changes had Laken lace in
demand. Rural markeLs had
surged Lo roughly equal urEan
ones, Lhere vas an uvard
movemenL Lo more remium
roducLs. Younger eole re-
lerred moLorcycles, and Lhese
vere also oular in rural areas
Eecause ol Lheir large vheel
diameLer and consequenL sLa-
EiliLy on rough roads. oeds
vere osiLioned aL Lhe lover end
ol Lhe cusLomer Ease vhere a high
degree ol imorLance vas given
Lo lov rice and luel elliciency.
JradiLionally scooLers vere used
as lamily vehicles Ey Lhe middle
class vho could noL allord a car.
While Lhis conLinued Lo hold Lrue,
scooLer demand vas solLening,
.ossiEly Eecause ol Lhe lack ol
nev models.` lelL adhur
Ba|a|, Ba|a| AuLo`s residenL.
BeLveen l2-8, Lo caLer Lo
Lhese changes, all 2-vheeler
manulacLurers had exanded
Lheir roducL range. Jhe markeL
vas lull ol hyErids such as Lhe
sLe-Lhru (a cross EeLveen a
scooLer and a moLorcycle) and
Lhe scooLereLLe vas a hyErid
EeLveen a moed and a scooLer.
AL Lhe same Lime, rice
dillerenLials had also Eecome
Elurred. By l8 Lhere vas a
scooLer more exensive Lhan a
moLorcycle, and a moed or a
scooLereLLe more exensive Lhan
a scooLer. Consumers decided
hov much Lhey vanLed Lo ay
and vhich leaLures Lhey vanLed
and a roducL vas availaEle in
LhaL range.
By l8 Ba|a| AuLo had
sLeed u moLorcycle roduc-
Lion, inLroduced nev scooLers,
sLe-Lhrus, and scooLereLLes. BuL
vhaL ol Lhe luLure As Rahul Ba|a|
mused, CosL leadershi and
expected capacity expansion to 2000
FY 98 FY 00 FY 98 FY 00 FY 98 FY 00 FY 98 FY 00
Bajaj 135,000 135,000 1,050,000 1,320,000 525,000 840,000 225,000 270,000
TVS 300,000 300,000 80,000 260,000 240,000 400,000 - -
Hero Honda 500,000 700,000 - - - - - -
Kinetic Honda - - 175,000 175,000 - - - -
Escorts Yamaha 12,000 12,000 - - 210,000 450,000 - -
LML - - 400,000 600,000 - ?? - -
Kinetic Engineering 150,000 150,000 12,000 12,000 - ?? - -
Hero Motors 150,000 150,000 - - - - - -
Enfield - - - - 25,000 25,000 - -
Greaves - - - - - - ?? ??
figures in units ?? = unknown
source: industry estimates
mopeds/scooterettes scooters motorcycles 3-wheelers
17
cusLomisaLion vere Lvo conLrary
Lhings. BuL LhaL is vhere manu-
lacLuring Lechnology counLs: even
il you vere roducing slighLly
dillerenL versions lor dillerenL
segmenLs ol Lhe markeL, you can
derive economies ol scale.`
Jhere vas no deEaLe aEouL
Lhe aLLracLiveness ol Lhe markeL.
According Lo Crisil, an inde-
endenL crediL raLing comany,
eneLraLion raLes in !ndia vere
much lover Lhan in oLher
develoing counLries: 26 er
l,000 households lor moLor-
cycles, 5l lor scooLers and 30
lor moeds in l7. verall
Lhe 2- and 3-vheeler indusLry
vas execLed Lo grov aL an
average ol l6% er annum lor
Lhe eriod l5-2000. AgainsL
Lhis, a sudden |um in eLrol
rices could lead Lo a osL-
onemenL ol Lhe decision Lo Euy
a 2-vheeler. And Lhe 2- and 3-
vheeler markeL vas vulneraEle
Lo economic cycles as iL vas
closely linked Lo Lhe economy
vhich in Lurn vas closely linked
Lo Lhe monsoon.
HisLorically Ba|a| AuLo had
deended on Lhe middle class vho
areciaLed iLs roducLs` vell-
earned reuLaLion lor ruggedness,
reliaEiliLy and long lile. Jhe
!ndian army used 4S Chamion
moLorcycles on Lhe Siachen glacier,
Lhe highesL EaLLle-lield in Lhe
vorld. !L vasn`L unusual lor a
Ba|a| scooLer Lo Ee used lor Len Lo
lilLeen years Ey one ovner, only
Lo Ee sold oll and used again lor
an equally long eriod. Jrue,
sLudies shoved LhaL Lhe middle
class vas groving EuL daLa vas
skeLchy. ore eole vere Erand
conscious EuL vhaL did Lhe Ba|a|
Erand sLand lor in Lhe eyes ol
CeneraLion NXJ
uLure roducL develomenL
in 2-vheelers had Lo Ee geared
Lovards Lhree caLegories ol users:
O1 Lhe enLry level roducL ie vhen
someone geLs oll his ovn Lvo
leeL or a Eicycle on Lo a 2-vheeler
O2 Lhe lov Lo middle income
grou vho vanLs a value-lor-
money roducL
O3 remium end ol Lhe markeL
Ra|iv Ba|a| vas clear LhaL Lhe
value lor money and remium
segmenLs vere Lhe segmenLs
vhere Ba|a| AuLo should concen-
LraLe, vhere volumes and roliLs
vould lie. nLry level rice is
geLLing re-delined viLh vehicle
regulaLions and Lhis vhich also
has a good share ol Lhe ie, vill
also Ee addressed.` AL Lhe same
Lime, ! leel Lhe Lerm 'remium`
is a misnomer. !L`s like calling
Lhe Zen or sLeem a remium car.
JhaL`s Lhe vay iL vas osiLioned
in !ndia EuL all over Lhe vorld, iL`s
a small, economy car,` he sLressed.
roliLs vere carelully squir-
reled avay aL Ba|a| AuLo and
noL deloyed in diversilicaLion as
oLher !ndian comanies Lended Lo
do. !nsLead Lhe comany quieLly
layed Lhe inLer-cororaLe loan
markeL and Lhe sLock exchange
viLh remarkaEle dexLeriLy and
suELleLy. !L Look ride LhaL, !Ls
aEiliLy Lo make money vas
maLched Ey iLs caaciLy Lo make
LhaL money mulLily.` A comany
Erochure claimed: . as one
Erovses Lhrough Lhe Comany`s
Annual reorL, iL is dilliculL noL
Lo envy Ba|a|`s near zero deEL
sLaLus, resLricLed inLeresL cosLs,
Lo qualiLy currenL asseL man-
agemenL, Rsl5En cash reserve
chesL and aEove all, iLs B!J
(earnings Eelore dereciaLion,
inLeresL and LaxaLion) Lo Lurn-
over raLio ol over 23%.` AlLer
LhaL, -s|c Mn., romLly raLed
Ba|a| AuLo as one ol Asia`s EesL
managed comanies, and -s|c
nc ranked iL 20Lh among Asia`s
osL ComeLiLive Comanies`.
Jhe rosy ligures masked one
crucial lacL. Ba|a| AuLo en|oyed
Lhe EesL roliLs in Lhe Eusiness EuL
as markeL share died, so did
roliLaEiliLy. rom l7 onvards,
Lhe comany deliEeraLely used
usuc||, c B/J/J sc:.r uSED jr 10 : 15 ,.crs |, n.
0W|ER, |s s|J cnJ us.J /C/|| jr cn .uc||, |n .r|J.
18
|:s /B|L|IY : mc|. V0|EY ucs mc:c|.J |,
|:s C/|/C|IY : mc|. :|c: V0|EY VuLI||LY
iLs linancial muscle Lo shore u
markeL shares. A Erake vas
alied Lo reLail rices. unds
vere lenL aL suEsidized raLes Lo
Ba|a| AuLo inance LLd, a sisLer
concern, lor iLs consumer linance
schemes. !n Y8 on sales ol
Rs35,l32En, Lhe share ol oLher
income in re-Lax roliLs vas
5l.6%. NeL roliL rose 5.4% EuL
oLher income rose l.8%.
eanvhile domesLic com-
eLiLion vas hoLLing u. A Eull run
lolloved Lhe ll-3 recession.
BeLveen l3-6, CACR lor Lhe
scooLer segmenL vas 20%, lor
moLorcycles 3l%, moeds 2l%
and 3-vheelers 38%. YeL Ba|a|
AuLo`s grovLh raLe vas noLhing
Lo vriLe home aEouL. !n Y6
vhen Lhe indusLry grev aL
2l.5%, Ba|a| AuLo grev aL l5%.
And in Y7, vhen iL vas l3%,
LhaL ol Ba|a| AuLo vas l0%.
Jhe disaLch days vere gone.
!L vas no longer, You can have
any model you like, as long as iL is
a C|.:c|.` !L vas no longer even a
quesLion ol ushing sales EuL real
markeLing, requiring locused
osiLioning sLraLegies, and clear
deliniLion ol roducL aLLriEuLes.
Jhe enalLy lor lailed roducL
launches had risen viLh so many
qualiLy Eikes in Lhe markeL.
UnLil Lhe nev roducLs could
enLer Lhe markeL (l8-), Ba|a|
AuLo used iLs linancial clouL Lo
shore u iLs lalling markeL shares.
!n ]uly l7 iL launched an
aLLracLive linance scheme aL a
llaL % raLe, vhich vas aL leasL
l%-2% lover Lhan LhaL ollered
Ey Eanks and much cheaer Lhan
cerLain oLher schemes. Jhese vere
ollered Lhrough iLs sisLer concern,
Ba|a| AuLo inance LLd and iLs
neLvork ol 26 Eranches. Ba|a|
AuLo lenL Lhe laLLer suEsidized
lunds. Hero Honda |umed onLo
Lhe Eandvagon EuL ollered
linance aL l2% llaL. CounLryvide
ollered aL l6% llaL. CusLomers
also lound Lhe Ba|a| AuLo oller Lhe
easiesL in Lerms ol dovn aymenL
and lasLer rocessing.
Had Lhe scheme noL Eeen
inLroduced, sales vould have
sluLLered even more Lhan Lhey
did. BeLveen Aril-]uly l7, lor
examle, Ba|a| AuLo`s sales
droed 20% even as Hero
Honda gained % in moLorcycles,
LL 7% in scooLers and JVS
Suzuki 5% in moeds and 3% in
moLorcycles. Jhe icLure in
AugusL vas much EeLLer. Sales
vere u Ey l4%, viLh 60,500
scooLers sold as againsL 53,000 in
]une l7. Ba|a| AuLo sLoed
shorL ol cross suEsidising models
Lo vin Eack lurLher markeL share.
All models vere roliLaEle even
Lhough Lhe degree varied. ven Lhe
enLry-level models such as Lhe
Sunn, made a l2.5% roliL Eelore
adverLising cosLs.
ven as Lhe linance guys held
Lhe lorL, markeLing goL inLo Lhe
acL. RL Ravichandran, markeLing
head aL JVS Suzuki vho had
Eeen crediLed lor iLs |um in
markeL share Ey ll% in l3,
vas inviLed Lo |oin Ba|a| AuLo.
Jo creaLe more cusLomer ull,
adverLising EudgeLs vere Eeeled
u. n aer, selling exenses as
a ercenLage ol neL sales Earely
grev: lrom 4.26% in l5, Lo
5.86% in l8. BuL as neL sales
grev Ey aEouL 50% during LhaL
eriod, Lhe aEsoluLe send
increased Ey over l00% in Lhese
Lhree years. Jhe Lune changed in
Lime viLh Lhe EeaL. !n Lhe l80s,
Lhe ad line vas You ]usL Can`L
BeaL a Ba|a|`, in mid-l0s, iL
vas Hamara Ba|a|`. Jovards
Lhe laLe l0s, Ba|a| moLorcycles
claimed Lo Ee UnshakeaEle`.
Jhe Lheme came sLraighL ouL
ol Ra|iv Ba|a|`s exerience.
Consumers vanL someLhing
sicy more lrequenLly. WhaL
made a Lerrilic imacL on me vas
vhen ! heard a consumer say, 'Yes,
Lhe Ba|a| scooLer is Lhe cheaesL,
EuL LhaL`s vhaL iL deserves Lo Ee`,`
recalled Ra|iv Ba|a|.
We have Lo undersLand Lhe
cusLomer`s mindseL. Jhis is
:|. |E|/LIY jr |/|LED |R0DuCI |cunc|.s |cJ
R|SE| u|:| s mcn, 0u/L|IY |||.s |n :|. mcr|.:
19
'B/J/J sc:.r |s :|. C|E/|ESI, |u: :|c:`s
u|c: |: DESERVES : |.,` sc,s c cnsum.r
direcLly linked Lo innovaLion.
NoL necessarily Lechnology
innovaLion. !n Lhe l0s, gloE-
ally Lhe Lechnology Eehind mosL
2-vheelers is Lhe same. WhaL 2-
vheelers could noL give in 40
years, cars have done in |usL a lev.
Secondly ve have Lo Ee more
innovaLive. Jhe Ba|a| AuLo
mindseL vas LhaL once ve
inLroduced a roducL, eole
vould Euy in volume. Jhirdly, ve
have losL a ersecLive on vhaL
consLiLuLes value and cosL. When
eole see a Rs20, 000 rice Lag,
Lhey no longer say, 'h vov,
Rs20, 000!` We need real value.`
qua|ity issues
ualiLy sLandards had also
slied. Jhe qualiLy ol ouLside
comonenLs vas oor EuL
demanding qualiLy lrom vendors
vas easier Eecause Ba|a| AuLo
could re|ecL Lhe EaLch. Vendors
mighL noL Ee inLeresLed in
imroving qualiLy EuL vould
resond Eecause Lhey vanLed Lhe
Eusiness. Jhe Lrickier issue vas
hov Lo imrove qualiLy in-house.
Jhis meanL going Eack Lo
manulacLuring engineering. A
quick analysis revealed LhaL some
comlainLs vere due Lo lain
sho lloor haEiLs EuL oLhers vere
design-relaLed. !n cLoEer l7
a Lask lorce vas lormed viLh
nev recruiLs aLLached Lo each
Ceneral anager aL Lhe vorks EuL
reorLing Lo Arvind CuLa.
ComlainLs could mean a
rocess redesign, a Looling modi-
licaLion or Lhe recondiLioning/
relacemenL ol a machine. Jhis
Look EeLveen lour Lo six veeks,
someLimes eighL Lo lourLeen
veeks. arlier, Lhere used Lo Ee
a long vaiLing Lime lor a
roElem Lo geL aLLenLion. Nov il
Lhere vas a hoL issue, iL Look a
veek, a less imorLanL issue
could Lake uLo six monLhs EuL
all issues had Lo Ee correcLed.
uElic erceLion Eeing
vhaL iL is, Lhe good nevs vas
Laking iLs Lime Lrickling Lhrough
Lo consumers. !n l8 Lhere
vas a vaiLing lisL lor Hero
Honda moLorcycles, noL lor
Ba|a| moLorcycles or lor scooLers
lor LhaL maLLer.
cha||euges of the
future
bajaj auto's corporate
missiou: As an organisaLion
comeLing on a gloEal Easis,
ve locus our resources on
conLinuously enhancing cusLo-
mer saLislacLion viLh our
roducLs and services.`
verall, Lhe economies ol
scale LhaL Ba|a| AuLo en|oyed, iLs
high roliLs and aEiliLy Lo
manulacLure a lov cosL roducL
should have Eeen Lhe erlecL
vehicle on vhich Lo challenge Lhe
vorld markeLs. !ronically, Lhe
cosL elliciency ol Lhe !ndian
oeraLion made Ba|a| AuLo
relucLanL Lo sLe ouLside !ndia.
Scale has made us exLremely cosL
comeLiLive in Lhe markeL lace.
Size has also alloved us Lo oller
a lull range ol roducLs and
EolsLered our linancial sLrengLh.
BuL no markeL can rovide me Lhe
volumes ! can command in !ndia.
You need noL have manulacLuring
laciliLies all over Lhe vorld Lo Ee
gloEally comeLiLive. Hence cosL
does noL comel me Lo move my
manulacLuring ouL,` said Rahul
Ba|a|. BuL Ey noL sLeing inLo Lhe
ouLside vorld, vas Ba|a| AuLo`s
vision geLLing arLially Elinkered
Under Rahul Ba|a|, Lhe
comany had evolved an
exLremely successlul sLraLegy
Eased on cosL leadershi and
roducL roEusLness (annexure
04). BuL Lhe ieces ol Lhis sLraLegy
high volumes, lev roducL
varieLies, invesLmenL in
roducLion and disLriEuLion
only alLer demand vas in lace,
and conservaLive linancial
olicies vere LighLly kniL
LogeLher. A small change in any
arL ol Lhe icLure such as more
20
:|. cmcn, |cJ .t|t.J cn E/IREVELY
SuCCESS|uL SIR/IECY, unJ.r nc|u|
ur RES0uRCES |0CuS n cn:|nuus|, .n|cnc|n
cus:m.r sc:|sjcc:|n u|:| 0uR |R0DuCIS cnJ SERV|CES
Loudou 8usiuess Schoo|
21
roducL varieLies vould
necessarily imacL Lhe LighL liL,
and mayEe unravel Lhe sLraLegy.
Ra|iv Ba|a| vas villing Lo
Lake a chance. Convinced LhaL
Lhe vay lorvard vas Lo oller Lhe
cusLomer more Lhan he or she vas
geLLing so lar, Ra|iv Ba|a| asked,
Had Lhe rear viev mirror Eecome
Lhe vindshield`
Jhe huge changes inside Ba|a|
AuLo mirrored Lhe equally signi-
licanL changes occurring in Lhe
2-vheeler indusLry vorld-vide.
CloEally 2-vheeler roducLion
had shilLed lrom Lhe develoed
WesLern economies Lo Lhe Asian
counLries. !n l3 Asian coun-
Lries (including ]aan) accounLed
lor 65% ol Lhe vorld`s 2-vheeler
roducLion. !n Lhe decade l83-
l3, 2-vheeler roducLion in
]aan and WesLern uroe
declined declined Ey 6% and
8.5% (comounded annually)
resecL-ively. !n conLrasL, Asia
(excluding ]aan) grev aL l3.5%.
!ndia vas Lhe second largesL
markeL lor 2-vheelers in Lhe
vorld (alLer China). !n l4
!ndia accounLed lor l2% ol Lhe
vorld`s 2-vheeler roducLion.
AlmosL lrom Lhe day he
|oined Ba|a| AuLo, Rahul Ba|a|
had dreamL ol making Lhe !ndian
comany Lhe vorld`s leading
manulacLurer ol 2-vheelers. Jhis
vas vhen Ba|a| AuLo had only
one roducL, LhaL Loo a iaggio
look alike, and Lhere vas a local
Len year vaiLing lisL. YeL in every
inLerviev he gave, Ba|a| vould
Lalk aEouL exorLs, aEouL Lhe need
Lo Eecome vorld class in manu-
lacLuring, hov Lhe comany musL
raise iLs qualiLy sLandards, eLc.
Asked once Lo sell ouL vhaL
he meanL Ey vorld class`, Rahul
Ba|a| relied, Jhe day 20% ol
my roducLion is exorLed, ! vill
say ! am vorld class.` Jo achieve
Lhis level ol exorLs needed a
comEinaLion ol lurLher rice
reducLion, a EeLLer linish, a Eigger
range, greaLer Lechnological
develomenL and a disLriEuLion
neLvork in ma|or markeLs. Jhis
vas in l8. By l8 Ba|a| AuLo
aeared Lo have rogressed
Lovards Lhese oE|ecLives.
!L had gained consideraEle
exerience ol inLernaLional
markeLs even il Lhe 20% LargeL
had noL quiLe Eeen achieved. Jhe
comany vas Lhe lovesL cosL
roducer ol scooLers in Lhe vorld.
AesLheLics had Eecome as lamiliar
a Euzzvord as value-lor-money
on Lhe sho lloor. Jhe roducL
range had videned. And mosL
imorLanLly, Ba|a| AuLo had
vaulLed a ma|or Lechnology
hurdle: iL had learnL hov Lo
make Lhe more luel-ellicienL
and environmenLally lriendlier
4-sLroke engines. As Ra|iv Ba|a|
said, .Lhere vas an inLernal
'leel good` lacLor Loday vhich vas
missing in Lhe recenL asL.`
A somevhaL oorLunisLic
aLLiLude Lo exorLs led Lo exorLs
Eeing l% ol LoLal sales in Y0
and over 4.5% in Y8 (Rsl.4En).
Ba|a| AuLo claimed iL had
caLured 65% ol ColomEia`s
scooLer markeL, 30% ol
Uruguay`s moLorcycle markeL
and 5% ol Bangladesh`s 3-
vheeler markeL. Hovever, as
Rahul Ba|a| candidly admiLLed,
Jhere`s noL much oinL in
saying LhaL ve have a ma|or
resence inLernaLionally vhen
ve exorL 40,000 vehicles Lo 50
counLries and ol Lhese, 30,000 go
Lo |usL live counLries.` !l Ba|a|
AuLo vanLed Lo Ee a Lruly gloEal
comany, iL had Lo make a greaLer
imacL across more markeLs.
esiLe Lhe imressive
rogress and cosL leadershi, Lhe
grail Lo vorld leadershi seemed
as disLanL as Eelore. Jhe comany
had scaled a sLee learning curve
EuL Lhe ga EeLveen Ba|a| AuLo
and a comany such as Honda lor
examle, seemed as vide as ever.
Ba|a| AuLo`s record in accessing
inLernaLional markeLs vas aLchy.
!L had Eeen aEle Lo develo a
4-sLroke geared scooLer a vorld
lirsL EuL vas sLruggling Lo
rouLinely develo Erand nev
roducLs lrom scraLch in-house.
Why !n iLs aLLemLs Lo Eecome
vorld class, vhaL had Ba|a| AuLo
learnL and vhaL did iL sLill need
Lo learn
:|. Jc, 20 j VY |R0DuCI|0|
|s E/|0RIED, u||| sc, cm W0RLD CL/SS

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22
arreu|e 01
0|ar|tat|cr C|a|t
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23
arreu|e 02
Bajaj |a||] I|ee
income 39072 35041 34541 29320 22871
gross profit after interest but before depreciation and tax 8912 8327 7949 6688 5074
net profit 5528 4626 4400 4168 3096
net fixed assets 9218 6829 6039 5597 3346
gross fixed assets 18023 15725 13603 12183 9220
borrowed funds 3497 2582 2139 2051 2007
shareholders funds 27017 21182 17607 14083 10710
exports 1584 1408 1582 1895 1302
employee cost 2309 2198 1986 1727 1279
employee nos 18585 18589 21273 22891 19400
equity share data
sales per share (Rs) 327 293* 434 368 297~#
earnings per share (Rs) 46 39* 55 52 40~#
book value per share (Rs) 226 177* 221 177 135~
market price on BSE
high (Rs) 690 969 1121 876 1475
low (Rs) 483 474* 661 602 590~
dividend (%) 80 80* 100 100 80*
ratio
gross profit/sales (%) 22.81 23.77 23.01 22.81 22.18
net profit/net worth (%) 20.46 21.84 24.99 29.60 28.90
net worth/total assets (%) 59 58 59 57 57
long term debt net worth (times) 0.11 0.11 0.11 0.12 0.14
(Rs million)
* after 1:2 bonus issue ~ after 1:1 bonus issue and GDR issue # after GDR issue
source: Bajaj Auto Ltd Annual Report 1998-99
FY 99 FY 98 FY 97 FY 96 FY 95
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21
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Bajaj /utc Ltc ||rarc|a| Sua|]
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25
arreu|e 01
I|e Bajaj Jue|raut

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