PROBLEM III

Features of the organisation are out of alignment, parts of the organisation are working at
cross purposes, alignment activities- interventions- are developed to get things back “in
sync”.

HONDA – AUTOMOBILE SECTOR

• SoichiroHonda (1906-1992) was Japanese engineer and industrialist, and founder of
Honda Co.,Ltd.

• In 1937, Honda began producing piston rings-used in motorcycles.

• In 1948, Honda stared producing complete motorcycles.

• In 1949, Takeo Fujisawa joined the Honda ( one of the most person lead to Honda’s
success )

• In 1968, launching the Honda 1300-Honda’s first small car.

The Mission Statement of Honda is tried to maintain a global point of view, with the
dedication to supply the highest quality products at a reasonable price for worldwide
customer satisfaction. Moreover, taking new challenges with the pursuit of Initiative,
Technology and Quality, Honda is pursuing their 2010 Vision: Striving to be a company
society wants to exist through creating new value, globalization, and commitment for the
future. Honda conducts its businesses in Japan and throughout the world (including North
America, Europe and Asia).

PROBLEMS
• A continued economic slowdown, recession and the sustained loss of consumer
confidence in these markets, which may be caused by rising fuel prices or other
factors, could trigger a decline in demand for automobiles, motorcycles and power
products

• This has adversely affected Honda’s results of operations as U.S financial crisis has
affected the economics over the world.

• Japan was already in recession, an appraisal that was reinforced by the biggest fall in
five years in corporate capital spending for the last quarter of 2007.

• Honda lost 4.1 percent of its market share. Soaring gasoline prices and rising interest
rate affect deeply in North American Market.
 • The shifts in market environment makes a change in motorcycles market, endure
models experienced a sales decline. However, overall sales were caused to decline by
shifts in market environment.

• Moreover, Total demand in the United States in calendar 2006 fell 2.6% from the
previous year. Soaring gasoline prices in the summer buying season pushed up
demand for fuel-efficient cars.

• Honda has a trouble with the problem with Chinese manufacturers-who have made
the most motorcycles in Southeast Asia -that have trademark of Japanese
manufacturers by violating Japanese intellectual property.

• Consumers in this region do not have enough money to buy pure Honda‘s motorcycle.

STEPS TAKEN TO TACKLE WITH THE PROBLEMS TO ALIGN

ORGANISATIONAL ACTIVITIES

• To deal with this problem, Honda figured out an alliance strategy with Chinese
manufacturers by producing copies instead of fighting. Utilizing this strategy, Honda
has made new model Wave in 2002 that has a reasonable price and high quality. This
model is suitable with the Vietnamese‘s Income so it has become very popular in
Vietnam. The result was number of copied motorcycle has decreased dramatically.

• To tackle with problems the changes in IT were made which led Honda‘s operation
controlled more effectively.

• The innovation means of production and mode of production, like the auto fit
machine, are used by Honda that can mass product to reduce the cost, save the time
and increase the capacity.

• Respecting diversity- an open-door employment policy, is the policy that Honda

choose to manage its diversity.

• Honda is shifting from a regional strategy to one based on a global perspective; and
from fuel economy targets for product by weight or model to worldwide targets for all
product categories.

• In business execution, separate headquarters have been setup base on geographic,

business and function. General Manager or operating officer appointed to each region
but some senior manager responded responsibility more than region or function. In
important matters, executive councils deal with regional managers before making
decision. So, system is working effectively and efficiently, Honda can adapt quickly
in each region.
 • In internal control activities, Honda has built systems that include the formulation of
behavioral guidelines and procedures for self-assessment. The Company also has a
system to support initiatives of each division such as Business. Honda enhances the
trust and understanding of investors and shareholders by which Honda makes clearly
and disclosure activities such as quarter report timely and accurate.

• In Honda‘s concepts of leadership, the company focuses not only on the high quality,
high efficiency, and low price products but also on the social and environmental
responsibilities. Building a people-friendly plant is a key factor improve organization
performance because of its well treatment policies positively affect employee’s
attitude. It provides good environment and fairly treatment for every associate in
company, resulting in increasing employee’s satisfaction and making them to well
contribute to organization.

ARVIND MILLS – TEXTILE SECTOR

INTRODUCTION
Arvind Mills was promoted in June 1931, by Sanjay Lalbhai's grandfather, Kasturbhai
Lalbhai, and his two brothers, Narottam and Chimanbhai, in Ahmedabad. When Sanjay
Lalbhai took over the reins in 1975, Arvind Mills was at the crossroads.

By the late 1990s, Arvind Mills was the third largest manufacturer of denim in the world,
with a capacity of 120 million metres. Therefore, in the early 1990s, Arvind Mills initiated
massive expansion of its denim capacity.

Problems that started in Arvind Mills -

• A high wage structure, low productivity and surplus labor in the textile mills rendered
its businesses unviable in most the products categories in which it competed. The
emergence of power looms in the 1970s further exasperated the problems of Arvind
Mills. The government's indirect tax system at that time also reduced the profitability
of its product lines. In the mid 1980s, Arvind Mills switched to high-quality fabrics
requiring technical superiority that the power looms could not hope to match.

• In the late 1990s, due to global as well as domestic overcapacity in denim and the
shift in fashion, denim prices crashed and Arvind Mills was hit hard. The expansion
had been financed mostly by loans from domestic and overseas institutional lenders.

• As the denim business continued to decline in the late 1990s and early 2000, Arvind
Mills defaulted on interest payments on every loan, debt burden kept on increasing. In
2000, the company had a total debt of Rs 27 billion, of which 9.29 billion was owed
to overseas lenders.

• Arvind Mills' expansion strategy resulted in the company's poor financial health in the
late 1990s. In the mid 1990s, Arvind Mills' undertook a massive expansion of its
 denim capacity in spite of the fact that other cotton fabrics were slowly replacing the
demand for denim.

• The expansion plan was funded by loans from both Indian and overseas financial
institutions. With the demand for denim slowing down, Arvind Mills found it difficult
to repay the loans, and thus the interest burden on the loans shot up. In the late 1990s,
Arvind Mills ran into deep financial problems because of its debt burden. As a result,
it incurred huge losses in the late 1990s. The company's credit rating had also come
down. CRISIL downgraded it to "default" in October 2000 from "highest safety" in
1997.
• In early 2001, Arvind Mills announced a restructuring proposal to improve its
financial health and reduce its debt burden. The proposal was born out of several
meetings and negotiations between the company and a steering committee of lenders.

STEPS TAKEN
• Then Arvind Mills went for debt-restructuring plan for the long-term debts. The
restructuring was overseen by Mr Jayesh Shah, CFO and advised on by a JP Morgan
Hong Kong team, led by Mr Ahmad Ayaz.

• New markets were created, technology was upgraded, and looking at rationalising
their suppliers and competition was also tackled.

• In 2003 - For the fourth quarter, Arvind Mills witnesses 280% growth in the net profit

• Arvind Mills Ltd is assigned a `P1+` rating by CRISIL, which indicates a very strong
rating for their commercial paper.

• In 2004 - Company turns itself around showing remarkable improvement in financial

performance. This was done only when all the parts of the organisation started back to
be in sync. The decisions were taken accordingly so that every activity in the
organisation are aligned. It was necessary to do so as they don’t face the same
problem that they have faced earlier of non-repayment of loans which they had taken
for capacity expansion.

• In 2005 - For the fourth quarter in a row, Arvind Mills has managed to post a profit
growth in excess of 80 per cent.

• Currently Arvind Mills has a strong Research and Development focus on process
improvement, cost reduction and new product development. Arvind Mills
continuously modifies its production process to enhance flexibility on the use of
various types and quality of cotton. To further meet customer needs, Arvind Mills has
also introduced a new dyeing and processing method for denims.

Conclusion
History has been witness to the Arvind Group’s commitment to excellence, innovation,
perseverance and undying attention to customer and societal needs. As an organization,
Arvind has successfully integrated diverse businesses, services and products, unified by a
common vision - of enriching lifestyles.

Policy of change has fetched the company to well deserved results. Arvind Mills’s adoption
of new-age fabrics has seen the Company emerge as one of the largest denim manufacturers
in the world, while also bringing us global recognition for the manufacture of shirting, khakhi
and knitted fabrics.

State-of-the-art technology and equipment have made Arvind Mills one of the top three
producers of denim in the world, paving the way for the Company to emerge as a global
textile conglomerate. This cutting edge position comes to Arvind Mills courtesy technologies
such as Open-end Spinning, Foam Finishing, Mercerizing, Slasher-dyeing, Rope-dyeing, Air-
Jet, Projectile and Wet Finishing. It’s only natural that Arvind Mills’s quality fabrics are in
high demand in the markets of Europe, US, West Asia, the Far East and Asia Pacific.

TORRENT GUJARAT BIOTECH LIMITED –

PHARMA SECTOR
INTRODUCTION

Incorporated in 1991, Torrent Gujarat Biotech Limited (TGBL) became the largest new-
generation producer of Penicillin-G, meeting about 18% of the country's Penicillin needs. It
was one of the few companies in the world with an integrated technology to manufacture
Penicillin-G. TGBL offers the entire range of ß-lactum products viz. Amoxycillin Trihydrate,
Ampicillin Trihydrate and Cloxacillin Sodium to a large number of customers in India,
Europe, Latin America and Asia.
Over the years TGBL was accorded WHO GMP certificates and Certificate of Suitability
from European directorate for Quality of Medicines (EDQM) for Amoxycillin Trihydrate.
TGBL is also a recognized Export House. TGBL also added more products over the years
and consolidated its position in India.

Problem began - Torrent Gujarat Biotech defaults on Rs 70 crore NCD

(Non-convertible Debentures)

Torrent biotech had good R & D but it was not able to have better control in its own
organization. It was more controlled by the management team of Torrent Pharma. Therefore,
torrent biotech’s management team and torrent pharma’s management team was unable to
maintain sync between the activities of torrent biotech. Further it led the organization into
cross purposes and they took decisions without proper forecast and analysis. Of these many
improper decisions further led torrent biotech failing to achieve its operating activities and it
was not able to pay out its debts as because of declining bottom lines.

Torrent Gujarat Biotech Ltd, a group company of the Ahmedabad-based Rs 2,000-crore

Torrent group, has failed to redeem the first installment of its Rs 70-crore non-convertible
debenture (NCD) issue. It has also defaulted on interest payment to them.
Further, as its net worth was wiped out as on March 31, 1999, the company referred the
matter to the Board for Industrial & Financial Reconstruction (BIFR). The board registered
Torrent Gujarat as a sick industrial undertaking on May 31 this year. As a result, all secured
and unsecured liabilities of the company have been frozen.

Torrent group chairman Sudhir Mehta has admitted that owing to the "grim situation
concerning the Penicillin-G business despite a few favorable policy measures having been
initiated by the Central government in the Union budget and Exim policy, 1999, the
company, during the financial year 1998-99, has incurred a net loss of Rs 44.45 crore, and its
accumulated losses as at the end of March 31, 1999, has increased to Rs 108.84 crore".

"This has resulted in a severe resource crunch and the company has not been able to redeem
the first installment of NCDs falling due for payment on February 24, 1999, and also the
payment of interest for the half year ended March 31, 1999," Mr. Mehta adds.

Given the company's financial situation, the Gujarat government had declared Torrent
Gujarat as a relief undertaking under the provisions of the Bombay Relief Undertakings
(Special Provisions) Act, 1958, on May 3 this year. As provided under the Sick Industrial
Companies Act Torrent was preparing a scheme of revival taking into account present and
anticipated market conditions. The assurance was expected to hold little support for the
company's debenture holders who stand to lose heavily.

The face value of the company's debentures was Rs 55 per instrument, while the market load
was 100 debentures. What is expected to cause consternation among the debenture holders
isthat while Torrent Gujarat's equity is a mere Rs 45 crore, it incurred a net loss of Rs 44.45
crore during 1998-99. Against this, the company's sales turnover was a relatively low Rs
87.12 crore.

The Torrent group's financial woes was been compounded by fresh roadblocks created by the
Foreign Investment Promotion Board (FIPB) and financial institutions in the way of
offloading the group's 40 per cent equity in Gujarat Torrent Energy Corporation in favour of
PowerGen. Gujarat Torrent Energy is a joint venture between Torrent and the British power
major.

The deal, if concluded, would have fetched Torrent a hefty Rs 1,100 crore, enough to pull out
several of the group companies from financial wilderness. Delay in clearance of the transfer
of equity is being perceived as a setback to the group's revival and expansion plans.

Interventions done by management to bring back in sync the parts of

organisation that are working at cross purposes which led to problem

Torrent Cables, part of the Ahmedabad based Rs.29 billion Torrent group, amalgamated with
Torrent Gujarat Biotech on July 1, 2006. The scheme provides for compromise with creditors
of the company by way of settlement of current dues at 0.50 percent, which means the
creditors will forgo the balance dues of 99.50 percent. TGBL was highly centralised, TGBL
was a controlled by torrent pharmaceuticals.

Therefore it was highly centralized and only top management were involved on its decision
making process. Involvement of lower management was only from stage of implementation.
Earlier to this amalgamation sterling biotech bought torrent unit for Rs. 55 crore.

Sterling Biotech, the country’s largest gelatin producer, has signed an agreement with the
Gujarat-based Torrent Gujarat Biotech (TGBL) to purchase its manufacturing unit at Masar
in Vadodara for Rs 55 crore in an all-cash deal.

Sterling Biotech chairman and managing director Nitin Sandesara said the company was
planning to convert the penicillin G plant into a facility for manufacturing gelatin derivatives
by upgrading the technology.
Sterling is on a capacity expansion spree, both in India and abroad, to cater to the global
gelatin market. The TGBL acquisition is part of the CAPEX (capital expenditure) programme
in the domestic front. It was known that company’s plan was to expand its manufacturing
capacity and TGBL was under losses therefore it got support from Sterling.

SUBHIKSHA – RETAIL SECTOR

INTRODUCTION

Subhiksha with a pioneering approach and giving new definitions to the retailing ventured
into the Indian retail industry. Since, their predecessors already existed and were doing well
in the market; they came up with an innovative approach to compete with them.

They have made an extensive research on customer behaviour and found that offering the
branded goods at a lower price than their competitors could make them stand in the
competitive retail industry.

Subihksha wanted to "pioneer a new trend" because of what they had found out about the
retail industry: that the No.1 retailer makes the most money; the No. 2 makes some money,
while the third (and the others) has to eventually shut shop.

In the year 1997, Subhiksha opened its first store at Thiruvanmiyoor in Chennai with an
investment of around Rs 4-5 lakh, with the theme,” why pay more when you can get it for
less at Subhiksha”

The expansion of the stores:

By March 1999, Subhiksha started expanding rapidly. From 14 stores, it expanded to 50

stores by June 2000. In the next two years, it had 120-130 stores across Tamil Nadu.

They decided to look at every part of India which is significantly literate and is a significant
consumption market. Telecom companies are their role model. They employed capable
regional managers and expanded. In 2004-05, they decided to have 420 stores in places like
Gujarat, Delhi, Mumbai, Andhra and Karnataka by 2006.

In 2005, Subhiksha started recruiting people in various regions. Subhiksha was operating
over 1,500 supermarket stores across more than 100 cities selling food, grocery, drugs, and
telecom products across INDIA.
Cut price strategy:

Opening a chain of no-frills stores-no air-conditioning, no fancy lighting, and no touchand-

feel experience (customers have to ask for products at Subhiksha stores)-was a deliberate
strategy. Shops were located not on the main road, but just off it, to take advantage of vastly
lower rentals. The catchment area of customers is rarely beyond a two-km radius, since its
customers usually come on two-wheelers or on foot.

The triumphant journey of Subhiksha:

Earlier Subhiksha was the only local player with 150 stores (September 2006) operating
mainly in Tamilnadu. The retailer began growing rapidly outside the state, soon after infusion
of private equity capital by I-venture, the venture capital arm of ICICI. I-Venture took 24 per
cent stake in the company’s equity, which until then was primarily held by Mr. Subramanian
and his associates. Riding on the back of rapid expansion, Subhiksha’s turnover grew from
Rs 330 crore in 2005-06 to Rs 833 crore in 2006-07, and then to Rs 2,305 crore in 2007-08
(year ending March 31, 2008). Likewise, having grown from 150 stores in September, 2006
in Tamilnadu to 1,600-odd stores across the country in September, 2008, Subhiksha has been
the envy of its competitors.

By the end of 2008 its gross turnover was of Rs 4,300 crore from 2,300 stores. Interestingly,
all the growth was, however, fuelled from a small net worth base of Rs 250 crore having
equity component of Rs 180 crore (face value of Rs 32 crore).

The problems and features of the organisation that led to cross

purposes in organisation’s activities –
Risk in retailing and expansion

They did a lot of research before starting business in an area, and they had back-up plans in
place. They worked with very good people, and if something goes wrong, they try to take
corrective steps.

The big advantage they had was they were not creating products. So, there were no worries
about whether it would succeed or not. The retailer could not keep pace with its growth and
gets into liquidity trap as in the hope increasing its valuations, it kept postponing infusion of
equity funds.

Need for an IT Solution

The need was first felt when the company began to face problems managing its frontend and
supply chain operations using its existing local Enterprise Resource Solution (ERP).

"We were facing a lot of difficulty in accessing data across different regions using this local
solution," concurs Ankur Saigal, vice president (Tech Initiative), Subhiksha Trading
Services.
"Besides business expansion brings its own complexities and we needed a robust platform to
streamline our operations and control."

Furthermore, the company needed a solution to manage the payroll system. Although it didn't
have any HR issues at the ground level, sending the payroll to employees on time was getting
difficult. The system worked manually, with a central team taking care of running 2-3 payroll
systems in a month depending on the availability of the bandwidth and the entire process.

To avoid further problems, the company decided to invest in a more effective ERP solution
and zeroed in on the SAP All-In-One solution in July 2007.

Supply chain despair bare Subhiksha shelves

Inventory management is austere, too. All goods are bought on cash to extract the maximum
discount from suppliers; SKUs (stock keeping units or the number of items on display) are
restricted to the fastest moving ones of about 1,500. Most of the SKUs are bought directly
from the manufacturer, cutting the intermediary out.

Supply chain software, developed in-house, keeps track of what's selling and what isn't.
Management is divided into two simple sections: operations, which is centralized and looks
after everything from ordering to accounting, and stores, which is responsible for all store
level activity. There's one manager for every three stores, and he reports to a chief manager
responsible for business development, who in turn reports to a vice president.

The VPs are responsible for sales targets. Mr R. Subramanian, Managing Director, admits to
a “communication failure” in informing customers why store shelves are empty. “There is a
lot of pain around SAP (being implemented by TCS). We didn’t think it would take so long.
All our 1,650 stores are being converted and we cannot run a legacy system alongside SAP.
An intermediate system in place means we will lose control.” He says that the stock outs in
the stores could lead to some business losses but says the chain will bounce back soon.

Organisation out of alignment

The management of Subhiksha committed some eventual mistakes that led the company
towards the downward position and organisation was out of its alignment of work.

The first and big mistake committed by Subhiksha’s management was expanding through
opening of number of stores without sufficient funds in hand.

They thought to raise funds through market from equity. But when they actually implemented
their thought of raising capital through equity capital from market it was very late and the
markets already started collapsing.

Therefore, this trouble made them unable to tie up funds for their ongoing operations. That
slowly started choking and has lead to paralysis of operations.

Further following were the problems side by side for which Subhiksha was unable to focus
on its main purpose and parts of organisation were working at cross purposes.
 1. Subhiksha Trading Services has come under fire from television channels for not
clearing advertising dues that run around Rs 8 crore.

2. Subhiksha is believed to owe Rs 35 crore against goods, Rs 18 crore against wages,

and Rs 20 crore against lease rents. The company, according to the report, is also
carrying a debt of Rs 700 crore at an average interest cost of 12 per cent per annum.

3. Expansion of Stores without adequate system control and IT Support. That’s why
there was a huge Audit and abnormal losses in the system. And when they have
started implement ion of SAP the time has gone for survival of Subhiksha.

4. Maharashtra FDA, the state government’s regulatory authority for food and drugs,
had asked Subhiksha to suspend operations of its warehouses at Bhiwandi (Mumbai)
for 20 days as well as had cancelled licences of three of its vendors, charging that they
had failed to maintenance health and hygiene norms as prescribed by the regulator.

5. Many wholesale suppliers in Azadpur subzi mandi, or vegetables market, have

stopped supplying fruits and vegetables to Subhiksha’s outlets in the National Capital
Region (NCR) surrounding the national capital. This comes in the wake of the
company holding up payments for two to six months against normal credit period of
one month.

6. Lack of strong Hr policy and Staff--- Due to this Shubiksha was not able to retain the
talent which he initially bring into Junior, Middle and high level management.
Whatever was remaining with it is all family bound with no commitment policy.

7. They were paying huge rentals for these stores, which was a huge drain on the
company's finances.. There are huge frauds while entering in to rental agreements by
their own management people. There was no proper check and control on this cost
though this is a very crucial part to defeat competitors and to gain profitability in
future. This, coupled with less than-expected footfalls, drove the operational costs to
unsustainable levels.

8. The wrong assumption that telecom segment is a sound, and profit making segment.
The CEO never looked in to system losses arise from telecom. Subhiksha stores
always sell handsets at below DP while its benchmarking is to match DP. No control
on inventory of mobile accessories and there stock value and were unable to circulate
the working capital.

9. Meanwhile, the company has closed around 90 grocery stores across the country over
the last one month or so. The company has also significantly reduced the inventory
levels in its mobile retail arm - Subhiksha Mobile stores.

Thus sinking into unrepaired conditions Subhiksha has to compete with its high profile
competitors like RPG, Reliance retail and Future group etc.
The raise of the company thus gradually started sinking down step by step and now stands on
the verge of collapse.
The market was tough due to entrance of its competitors and banks were cautious about
lending, but still they were in thought of getting back on track.

Subhiksha, which was forced to shut all its stores as it ran out of cash, is in talks with over ten
banks to restructure loans of nearly Rs 750 crore through a CDR (corporate debt
restructuring) exercise. Its promoter R Subramanian has said that the company can resume
operations after it gets cash of Rs 300 crore.

In all, 13 banks have cumulatively lent Rs 750 crore to the company. The banks that are part
of the restructuring include ABN AMRO Bank (Rs 50 crore), Bank of Baroda (Rs75 crore),
Centurion Bank of Punjab (Rs 40 crore), Development Credit Bank (Rs 25 crore), Federal
Bank (Rs 50 crore), HDFC Bank (Rs 65 crore), ICICI Bank (Rs 155 crore), Standard
Chartered Bank (Rs 25 crore), The Hongkong and Shanghai Banking Corporation (Rs 85
crore) and Yes Bank (Rs 50 crore). Such interventions helped to get things back “in sync” for
that time.

Banks have provided funds to Subhiksha which they were actually in need of. It can be said
that it was an attempt made by Subhiksha to bring back the organisation’s activities back in
sync. Finally Subhiksha was not able to bring back the organisation’s working which went
for cross purposes that led to shutdown of Subhiksha though it has made an attempt by
convincing the banks to get them funds.