Should the RBI go for a systematic and comprehensive strategic plan in place of its earlier pragmatic approach of responding to environmental events as and when they occur Why
Should the RBI go for a systematic and comprehensive strategic plan in place of its earlier pragmatic approach of responding to environmental events as and when they occur Why
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Strategic Management
Attempt
Any Four Case Studies
Case
I-THE STRATEGIC ASPIRATIONS OF THE RESERVE BANK OF INDIA
The Reserve Bank of India (RBI) is
India's central bank or 'the bank of the bankers'. It was established on April
1, 1935 in accordance with the provisions of the Reserve Bank of India Act,
1934. The Central Office of the RBI, initially set up at Kolkata, is at Mumbai.
The RBI is fully owned by the Government of India.
The
history of the RBI is closely aligned with the economic and financial history
of India. Most central banks around the world were established around the
beginning of the twentieth century. The Bank was established on the basis of
the Hilton Young Commission. It began its operations by taking over from the
Government the functions so far being performed by the Controller of Currency
and from the Imperial Bank of India, the management of Government accounts and
public debt. After independence, RBI gradually strengthened its institution-building
capabilities and evolved in terms of functions from central banking to that of
development. There have been several attempts at reorganisation,
restructuring and creation of specialised institutions to cater to emerging
needs.
The
Preamble of the RBI describes its basic functions like this: '...to regulate
the issue of Bank Notes and keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit
system of the country to its advantage.' The vision states that the RBI
'...aims to be a leading central bank with credible, transparent, proactive and
contemporaneous policies and seeks to be a catalyst for the emergence of a
globally competitive financial system that helps deliver a high quality of life
to the people in the country.' The mission states that 'RBI seeks to develop a
sound and efficient financial system with monetary stability conducive to
balanced and sustained growth of the Indian economy'. The corporate values
underlining the mission statement include public interest, integrity,
excellence, independence of views and responsiveness and dynamism.
The
three areas in which objectives of the RBI can be stated are as below.
1. Monetary policy objectives such as
containing inflation and promoting economic growth, management of foreign
exchange reserves and making currency available.
2. Objectives set for managing financial
sector developments such as supervision of systems and information access and
assisting banking and financial institutions to become competitive globally.
3. Organisational development objectives
such as development of economic research facilities, creating information
system for supporting economic decision-making, financial management and human
resource management.
Strategic actions taken to realise the objectives
fall under four categories:
1.
The
thrust area of monetary policy formulation and managing financial sector;
2. Evolving
the legal framework to support the thrust area;
2.
Customer
services for providing support and creation of positive relationship; and
3.
Organisational
support such as structure, systems, human resource development and adoption of
modern technology.
The major functions performed by the
RBI are:
·
Acting as
the monetary authority
·
Acting as
the regulator and supervisor of the financial system
·
Discharging
responsibilities as the manager of foreign exchange
·
Issue
currency
·
Play a
developmental role
·
Related
functions such as acting as the banker to the government and scheduled banks
The management of the RBI is the
responsibility of the central board of directors headed by the governor and
consisting of deputy governors and other
directors, all of whom are appointed by the government. There are four
local boards based at Chennai, Kolkata, Mumbai and New Delhi. The day-to-day
management of RBI is in the hands of the executive directors, managers at
various levels and the support staff. There are about 22000 employees at RBI,
working in 25 departments and training colleges.
The
RBI identified its strengths and weaknesses as under.
• Strengths
A large body of competent offers and staff; access to key data on the
economy; wide organisational network with 22 regional offices; established
infrastructure; ability to attract talent; and financial self sufficiency.
• Weaknesses
Structural rigidity, lack of accountability and slow decision-making;
eroded specialist know-how; strong employee unions with rigid industrial relations stance; surplus staff;
and weak market intelligence.
Over the years, the RBI has evolved in
terms of structure and functions, in response to the role as signed to it.
There have been sweeping changes in the economic, social and political
environment. The RBI has had to respond to it even in the absence of a
systematic strategic plan. In 1992, the RBI, with the assistance of a private
consultancy firm, embarked on a massive strategic planning exercise. The
objective was to establish a roadmap to redefine RBI's role and to review
internal organisational and managerial efficacy, address the changing
expectations from external stakeholders and reposition the bank in the global
context. The strategic planning exercise was buttressed by departmental
position papers and documents on various subjects such as technology, human
resources and environmental trends. The strategic plan of the RBI emerged with
four sections dealing with the statement of mission, objectives and policy, a
review of RBI's strengths and weaknesses and strategic actions required with an
implementation plan. The strategic plan reiterates anticipation of evolving
external environment in the medium-term; revisiting strengths and weaknesses
(evaluation of capabilities); and doing away with the outdated mandates for
enhancing efficiency in operations in furtherance of best public interests. The
results of these efforts are likely to manifest in attaining a visible focus,
reinforced proficiency, realisation of shared sense of purpose, optimising
resource use and build-up of momentum to achieve goals.
Historically,
the RBI adopted the time-tested technique of responding to external environment
in a pragmatic manner and making piecemeal changes. The dilemma in adoption of
a comprehensive strategic plan was the risk of trading off the flexibility of
the pragmatic approach to creating rigidity imposed by a set model of planning.
Questions
1. Consider
the vision and mission statements of the Reserve Bank of India. Comment on the
quality of both these statements.
2. Should
the RBI go for a systematic and comprehensive strategic plan in place of its
earlier pragmatic approach of responding to environmental events as and when
they occur? Why?
Case II- WHAT LIES IN STORE FOR THE RETAILING INDUSTRY IN
INDIA?*
India is not known as the 'nation of
shopkeepers', yet it has as many as 5 million retail outlets of all shapes and
sizes. Some other optimistic estimates "place the number at as high
as 12 million. Whatever be the number, India can claim to have the highest
number of retail outlets per capita in the world. But almost all of these are
small outfits occupying an average of 500 square feet in size, managed by
family members, having negligible investment in land and assets, paying little
or no tax and known as the kirana
dukaan ('mom and pop' stores in the U.S or the corner grocery stores in
the U.K.). These outlets offer mainly food items and groceries—the staple of
retailing in India. Customer contact is personal and one-on-one, often running
through generations. There are a limited number of items offered! often sold on credit—the payment to be collected at
the end of the month. The quality of items standard, with moderate pricing.
There
is great hype about the growth and prospects of organised retailing industry in
India. It must be noted, however, that organised retailing constitutes barely 2
per cent of the total retailing industry in India, the rest 98 percent being
under the control of the unorganised, informal sector of' kirana dukaans. Market research agencies
and consultants come up with encouraging forecasts about this segment of the
retailing industry. For instance, AT. Kearney's Global Retail Development Index
ranks 30 emerging countries on a 100- point scale. Its 2007-ranking places
India at number one for the third consecutive year, with 92 points, followed
by Russia and China. The size of the organised retailing industry is estimated
at US $8 billion and projected to grow at a compound annual growth rate of 40
per cent to US $22 billion by 2010. Overall, the Indian retailing industry is
expected to grow from the current US $350 billion to US $427 billion by 2010
and US $635 billion by 2015.
The economic environment in the
post-liberalisation period after 1991, has created several factors that have
made this high growth of the organised retailing industry possible. India's
impressive economic growth rate of 9 per cent is the prime driver of increasing
disposable incomes in the hands of the consumer. The growing size of the
consuming class in India, in tandem with the entry and expansion of the
organised sector players in recent years, has set the pace for corporate
investment in retail business. Practically, every major Indian business group
is looking for opportunities in the growing retailing industry. Among them are
the big names in the Indian corporate sector such as the AV Birla group,
Bharti, Godrej, ITC group, Mahindras, Reliance, Tatas and the Wadia group.
The international environment presently
is replete with examples of the fast-paced growth of the retailing industry in
many developing countries around the world. In the post-liberalisation period,
there is more openness and awareness of the international developments among
Indians. The ease of travel abroad and the exposure through television and
Internet have increase the awareness of the urban Indian consumer to the
convenience of modern shopping. The modern retail formats thus have gained
acceptance in India. Carrefour, Tesco and Wal-Mart are the international players already operating in India, with
several others like Euroset, Supervalue
and Starbucks having plans to enter soon. These international companies
bring to India the latest developments in the retailing industry and help to
set up a benchmark for the domestic player.
The
market environment is one of the most significant in terms of the growth and
prospects of the retailing industry in India. In terms of geography, the reach
of the organised retailing industry has been growing. In addition to the
mega-cities of Mumbai and Delhi, cities such as Bangalore, Pune, Hyderabad,
Kolkata and Chennai are also witnessing a boom in organised retail activity.
Retailers are now trying to focus on smaller cities such as Nagpur, Indore,
Chandigarh, Lucknow or Cochin. There are interesting possibilities regarding
the retail formats.
Traditionally, street carts, pavement shops, kirana stores, public distribution systems, kiosks, weekly
markets and such other formats unique to India, have been in existence for a long time. At present, most
organised retail formers are imitations of those used abroad. These include
hyper and supermarkets, convenience store, department stores and specialty
chains. Among these formats, a notable trend has been the development of
integrated retail-cum-entertainment centres and malls as opposed to stand-alone
developments. Besides these, there are some attempts at indigenous formats
aimed at the rural markets-such as those by ITC's Choupal Sagar, DSCL's Hairyali
Kisaan Bazaar and Godrej group's Godrej
Aadhar. Pricing is an important issue in the retailing industry.
Generally, the bulk buying yield lower costs of procurement for the big
retailers—a part of which they pass on to the customer in the form of lower
prices. In food retailing, for instance, there is a clear trend of low prices
being the determining factor in purchase decisions by the cost-conscious Indian
consumer. But, lower prices may not be a
major issue with the higher-income groups that may place greater
emphasis on the quality of products and retail service, store ambience and
convenience of shopping. For the majority of Indian consumers however, price is
likely to remain a significantly important issue in the purchase decision.
Competition has already accelerated with many Indian business groups having
entered or likely to enter this booming industry.
The political environment in India is
ambiguous! in terms of its support to the organised retailing industry. This is
obvious as the unorganised sector employs nearly 8per cent of the Indian
population and is widely spread geographically. The whelming presence in terms
of 98 per cent of the total retailing industry also is a significant political
issue. In a democracy, the politics of numbers makes it imperative for the
political class to adopt an ambiguous stand. In some cases,
politicians have acted in favour of the unorganised sector by disallowing the
setting up of large retail some states. Overall, however, there is ambiguity as
there are several environmental trends in favor of the development of the
organised retailing industry.
In
the regulatory environment, there has gradual easing of the restrictions albeit
at a slow pace, in view of the ambiguous political stance as indicated above.
Interestingly, the retailing industry, is still not recognised as an industry
in India, Foreign direct investment of up to 100 per cent is not permitted
though it is possible for foreign players to enter through the routes of
agreements, cash-and-carry wholesale trading and strategic licensing
agreements. Another problem area is of the real estate laws at the level of
state governments that are yet to be clear on the issue of allowing large
stores. Restructuring of the tax structure for the retailing industry is
another regulatory issue requiring governmental action. However, tariffs on
imported consumer items have been gradually aligned to meet the prescribed WTO
norms and reduction of import restrictions are likely to help the growing
organised retailing industry.
The
socio-cultural environment offers many interesting insights into the changing
tastes and references of the urban and semi-urban Indian consumer. There is a
large rural market consisting of nearly 720 million consumers, spread over more
600,000 villages. India's consumers are young: 70 percent of the country's
citizens are low the age of 36 and half of those are under 18 years of age.
These people have deep roots in the local culture and traditions, yet are eager
to get connected with and know the outside world. According to a DSP Merrill
Lynch report, the key factor providing a thrust to the retail boom in India the
changing age profile of spenders. A group of seven million young Indians in
their mid-twenties, learning over US$ 5000 per year, is emerging every year.
This group constitutes people who are enthusiastic spenders and like to visit
the new format retail outlets for the convenience and time saving they offer.
Malls are also being perceived as just places for shopping, but for spending
leisure time and as meeting places. There has been an emergence of a
combination of the retail outlet and entertainment centres having multiplexes,
with food courts and video game parlours.
But
there are some pitfalls too. For instance, organised retailing in India has had
to deal with the misconception among middle-class consumers that the modern
retail formats being air conditioned, sophisticated places are bound to be more
expensive.
The
supplier environment probably offers the biggest constraint on the growth of
the retailing industry in India. Reaching India's consumers cost effectively is
a distribution nightmare, owing to the sheer geographical size of the country
and the presence of traditional, fragmented distribution and retailing networks
and erratic logistics. For instance, the apparel segment that is one of the two
top segments, the other being food, have had to invest in back-end processes to
support supply chains. Supply chain management and merchandising practices are
increasingly converging and apparel retailers are establishing collaborations
with their vendors. Another area of concern is the severe shortage of skills in
retailing. Human resource development for the retailing industry has picked up
lately but may take time to fill the gap caused due to the shortage of
personnel.
The
technological environment for the organised retailing industry straddles many
areas such as IT support to supply chain management, logistics, transportation
and store operations. Some global retailers have demonstrated that an
innovative use of technology can provide a substantial strategic advantage. The
large number of store items, the diversity of sourcing and the gigantic effort
required to coordinate actions in a large retail context is ideal for using IT
as a support function. For instance, an innovative use of IT can help in a wide
variety of functions such as quick information processing and timely
decision-making, reduction in processing costs, real-time monitoring and
control of operations, security of transactions and operations integration.
The availability of supply chain management, customer relationship management
an merchandising software can help much while performing activities such as
ordering and tracking inventory items, warehousing, transportation and customer
profiling.
Overall,
the Indian scenario offers an interesting mix of possibilities and challenges.
A successful model of large-scale retailing appropriate for the Indian context
is yet to emerge. The modern retail formats accepted globally are in the
process of implementation and their acceptability is yet to be established.
Questions:
1. Identify the opportunities and
threats that the retailing industry in India offers to local and foreign
companies.
2. Prepare an ETOP for a company interested in
entering the retailing industry in India.
Case
III -HELPAGE INDIA
The developments in medical
sciences—the lowering of mortality rates and the increase in life
expectancy—have ironically led to a situation where there are increasingly, a
larger number of aged people in the society. The situation in most countries of
the world is that the number of ageing people is increasing. India too, like
other developing countries, experiences a rapid ageing of the population, with
estimated 80 million aged people. Almost eight out of ten of these aged
people live in rural areas.
The
challenges that the elderly people in society face are many. For instance, a
report in the Indian context indicates the following challenges:
§ 90% of senior citizens receive no
social security or medical care.
§ 73% of senior citizens are illiterate
and can only earn a livelihood through physical labour, which is possible only
if they are healthy in their old age.
§ 80% of senior citizens live in rural
areas with inadequate or inaccessible medical facilities; many are unable to
access the medical facilities because of reduced mobility in the old age.
§ 55% of women over the age of 60 are
widows with no means of support
The elderly people, or senior citizens,
are the fastest growing segment of the Indian society. By 2025, the population
of the elderly is expected to reach 177 million.
Unlike
many developed countries, India does not have an effective security net for the
elderly people. There have been sporadic attempts by governments at the central
and state levels to pay old age pensions, but like most government schemes,
there is a lot of leakage of funds and inefficiency. There is also a lack of
post-retirement avenues for re-employment.
Socio-economic
developments such as urbanization modernisation and globalisation have impacted
the economic structure and led to an erosion of societal values and the
weakening of social institutions such as the joint family. The changing mores
of society have created a chasm between generations. The intergenerational
differences have created a situation where the younger people are involved in
education, career building and establishing themselves in life, ending up
ignoring the needs of the elderly among them. The older generation is caught
between a society which cares little for them and the absence of social
security, leading them to a situation where they are left to fend for
themselves. It is in this context that institutions such as HelpAge India play
a positive role in society.
HelpAge
India, established in 1978, is a secular, not-for-profit, non-governmental
organisation, registered under the Societies Registration Act of 1860. Its
mission is stated as 'to work for the cause and care of the
disadvantaged older persons and to improve their quality of life'. The three
core values that guide HelpAge India's work are rights, relief and resources.
HelpAge India is one of the founder members of HelpAge International, a body of
51 nations representing the cause of the elderly at the United Nations. It is
also a member of the International Federation on Ageing.
The
organisation of HelpAge India consists of a head office at New Delhi, with four
regional and thirty-three area offices situated all over India. The governing
body of the organisation consists of ten distinguished people from different
walks of life. Besides the governing body, there are three committees: the
operations committee, the business development committee, and the audit
committee. The CEO, Mr Mathew Cherian oversees the planning and implementation
of policies and programmes, with the support of five electors. The regional
directors are responsible for their own regions. The program division at the
head office chooses the partner agencies to provide the services to the elderly
people.
HelpAge India raises resources to
perform three types of functions:
§ Advocacy about policies for the elderly
persons with the national and local governments
§ Creating awareness in society about the
concerns of the aged and promote better understanding of ageing issues
§ Help the elderly persons become aware
of their own rights so that they get their due and are able to play an active
role in society
The major programmes undertaken by
HelpAge India include mobile medicare units, ophthalmic care for
performing cataract surgeries, Adopt-a-Gran, support to old-age homes, day care
centres, income generation and disaster relief.
The
business model of HelpAge India is based on revenue generation through grants
and donations from international and national source. Nearly half of the
donations come from international donors. About a fifth of the donors are
individuals. The sources of contributions come from fundraising activities that
include direct mail, school fundraising corporate fundraising, sale of greeting
cards, acting as corporate agent for insurance, organizing event and establishing
a shop-for-a-cause that sells gift made by disadvantaged people. A review
report on the activities of HelpAge India enumerates its strong points as
below:
§ Wide Reach and Impact HelpAge India has been able to impact
the lives of a large number of elderly people and their families by adopting a
holistic approach that provide immediate relief as well as long-tern
sustainable improvement.
§ Effective Partnerships in Development HelpAge India has evolved as a
development support agency through creating partner agencies, that is funded to
implement the projects.
§ High Degree of Charitable Commitment Typically non-profit organisations
spend a loft; on overhead and administrative costs. But3 HelpAge
India is able to put nearly eighty-five, per cent of the funds towards actual
project implementation.
§ Focus on Efficiency and Transparency The partner agencies are chosen
carefully and monitored thoroughly. This results in increased efficiency and
low overheads. Project implementation through partnerships increases efficiency
and cuts down on 3overhead costs.
§ Quality of Management The management; quality of HelpAge
India is good and there are a lot of committed people. New employees are also
trained to be sensitive to the mission of the organisation.
With
a wide spread of activities and being a non-governmental organisation having
limited funding, HelpAge India has adopted modern means of information
technology and networking. Most of the HelpAge executives work in the field and
have no direct access to the office network. They have to use e-mail in order
to maintain contact with their regional or area offices. They use cyber-cafes
or handheld devices for sending and receiving e-mails. HelpAge has installed a
secure connection at an initial cost of Rs. 4 lakh and annual upgradation cost
of Rs. 75,000 to access e-mail from anywhere, with a high level of security and
protection of data and contents.
The
nature of non-profit organisations demands certain requirements. Among these,
transparency of operations and funds management is a major one. There are many
NGOs that are accused or suspected of misappropriating funds for personal
benefit. HelpAge India is conscious of this fact and gives high priority to
information disclosure. The audited financial statements and the annual report
are available on its website. The financial statements give a detailed account
of the expenditure on individual projects. The expenses on travel and salaries
of its employees and CEO are also mentioned. The individual donors are provided
information regarding the use of the funds donated by them.
The
functional approach at HelpAge India consists of developing projects based on
the assessment of the needs of its target community rather than on implementing
them directly. The implementation takes place through the partner agencies.
Rather than outright grants, it supports income generation projects for the
elderly people. The success of implementation critically depends on the
identification and appointment of partner agencies. The officers of HelpAge
India physically inspect the proposed agencies and check on their management to
ensure that they are not family-run set-ups established for personal gains.
HelpAge India works presently, with nearly 400 partner agencies. These include,
for instance, about 150 charitable eye hospitals that act as partner agencies
for the ophthalmic care programme.
HelpAge
India with its slogan of 'fighting isolation, poverty and neglect' moves on its
mission of providing 'equal rights, dignity for elders'. It foresees its future
activities in the area of rights based advocacy for a better life for the
elderly people by bringing them into the mainstream of society rather than
being marginalised to the fringes.
 |
| Should the RBI go for a systematic and comprehensive strategic plan in place of its earlier pragmatic approach of responding to environmental events as and when they occur Why |
Questions
1.
In your opinion, what is the distinctive competence of HelpAge India?
2.
Prepare a strategic advantage profile for HelpAge India.
Case IV- BHARAT HEAVY ELECTRICALS LIMITED CONCENTRATES ON
THE EQUIPMENT INDUSTRY
Bharat Heavy Electricals Limited (BHEL)
is India's largest engineering and manufacturing enterprise, operating in the
energy sector, employing more than 42000 people. Established in 1956, it
has established its presence in the heavy electrical equipments industry
nationally as well as globally. BHEL is one of the navaratnas (lit. nine
gems) among the public sector enterprises in India. Its vision is to be 'a
world class enterprise committed to enhancing stakeholder value'. Its mission
statement is: 'to be an Indian multinational engineering enterprise providing
total business solutions through quality products, systems, and services in the
fields of energy, industry, transportation, infrastructure, and other potential
areas'.
BHEL
is a huge organisation, manufacturing over 180 products categorised into 30
major product groups, catering to the core sectors of power generation and
transmission, industry, transportation, telecommunications and renewable
energy. It has 14 manufacturing divisions, four power sector regional centres,
over 100 project sites, eight service centres and 18 regional offices. It
acquires technology from abroad and develops its own technology at its research
and development centres. The operations of BHEL are organised into three
business sectors of power, industry and overseas business. Besides the business
sector departments, there are the corporate functional departments of
engineering and R&D, human resource development, finance and corporate
planning and development.
BHEL's
turnover hit an all-time high of Rs. 18,739 crore, registering a growth of 29
per cent, while net profit increased by 44 per cent to touch Rs. 2,415 crore in
2006-07. The company has a comfortable order book position of Rs. 55,000 crore
for 2007-8 and beyond. The company booked export orders worth Rs. 1,903 crore
in 2006-07. It is looking toward to US$10 billion exports by 2012 from the
present US$ 4 billion. The capital investment plan of BHEL for the 11th
National Plan period envisages an investment of Rs 3,200 crore, mainly to
enhance its manufacturing capacity from 10000 MW to 15000 MW.
BHEL
has formulated a five-year strategic plan with the aim of achieving a
sustainable profitable growth, targeting at a turnover of Rs. 45,000 crore by
2012. The strategy is driven by a combination of organic and inorganic growth.
Organic growth is planned through capacity and capability enhancement, designed
to leverage the company's core are s of power, supported by the industry,
transmission, exports and spares and services businesses. For the purpose of
inorganic growth, BHEL plans to pursue mergers and acquisition and joint
ventures and grow operations both in domestic and export markets.
BHEL
is involved in several strategic business initiatives at present for
internationalisation. These include targeting the export markets, positioning
itself as a reputed engineering, procurement and construction (EPC) contractor
globally, and looking for opportunities for overseas joint ventures.
An
example of a concentration strategy of BHEL in the power sector is the joint
venture with another public Enterprise, National Thermal Power Corporation, to
perform EPC activities in the power sector. It is to be noted that NTPC as a
power generation utility and BHEL as an EPC contractor have worked together on
several domestic projects earlier, but without a forma partnership. BHEL also
has join1 ventures with GE of the US and Siemens AG of Germany.
Other strategic initiatives include management contract for Bharat Pumps and
Compressors Ltd. and a proposed takeover of Bharat Heavy Plates and Vessels,
both being sister publics enterprises.
Despite
its impressive performance, BHEL is unable to fulfil the requirements for power
equipment in the country. The demand for power has been exceeding the growth
and availability. There are serious concerns about energy shortages owing to
inadequate generation and transmission, as well as inefficiencies in the power
sector. Since this sector is a major part of the national infrastructure,
problems in the fibwer sector affect the overall economic growth the country as
well as its attractiveness as a destination for foreign investments. BHEL also
faces stiff competition from international players in the power equipment
sector, mainly of Korean; and Chinese origin. There seems to be an undercurrent
of conflict between the two governmental ministries of power and heavy
industries. BHEL operates administratively under the Ministry of Heavy
Industries, but supplies mainly to the power sector that is under the Ministry
of Power. There has been talk of establishing another power equipment company as
a part of the NTPC for some time, with the purpose of lessening the burden on
BHEL.
Questions
1.
BHEL is mainly formulating and
implementing concentration strategies nationally as well as globally, in the
power equipment sector. Do you think it should broaden the scope of its
strategies to include integration or diversification? Why?
2. Suppose BHEL plans to diversify its
business. What areas should it diversify into? Give reasons to justify your
choice.
Case
V -THE INTERNATIONALISATION OF KALYANI GROUP
The Kalyani Group is a large
family-business group of India, employing more than 10000 employees. It has
diverse businesses in engineering, steel, forgings, auto components,
non-conventional energy and specialty chemicals. The annual turnover) of the
Group is over US$ 2.1 billion. The Group is known for its impressive
internationalisation achievements. It has nine manufacturing locations ad over
six countries. Over the years, it has established joint ventures with many
global companies such as ArvinMeritor, USA, Carpenter Technology Corporation,
USA, Hayes Lemmerz, USA and FAW Corporation, China.
The flagship company of the Group is
Bharat Forge Limited that is claimed to be the second largest forging company
in the world and the largest nationally, with about 80 per cent share in axle
and engine components. The other major companies of the Group are Kalyani
Steels, Kalyani Carpenter Special Steels, Kalyani Lemmerz, Automotive Axles
Kalyani Thermal Systems, BF Utilities, Hikal Limited, Epicenter and Synise
Technologies.
The emphasis on internationalisation is
reflected in the vision statement of the Group where two of the five points relate to the Group
trying to be world-class organisation and achieving growth aggressively by
accessing global markets. The Group is led by Mr. B.N. Kalyani, who is
considered to be the major force behind the Group's aggressive
internationalisation drive. Mr. Kalyani joined the Group in 1972 when it was a
small-scale diesel engine component business.
The corporate strategy of the Group is a
combination of concentration on its core competence in its businesses with
efforts at building, nurturing and sustaining mutually beneficial partnerships
with alliance partners and customers. The value of these partnerships
essentially lies in collaborative product development with the partners who are
the original equipment manufacturers. The foreign partners are not intended to
provide expansion in capacity, but enable the Kalyani Group to extend its
global marketing reach.
In achieving its successful status, the
Kalyani Group has followed the path of integration, extending from the upstream
steel making to downstream machining for auto components such as crankshafts,
front axle beams, steering knuckles, camshafts, connecting rods and rocker
arms. In all these products, the Group has tried to move up the value chain
instead of providing just the raw forgings. In the 1990s, it undertook a
restructuring exercise to trim its unrelated businesses such as television and
video products and concentrate on its core business of auto components
Four
factors are supposed to have influenced the growth of the Group over the years.
These are mentioned below:
• Focussing on crore businesses to
maximize growth potential
•
Attaining aggressive cost savings
• Expanding geographically to build
global capacity and establishing leading positions
• Achieving external growth through
acquisitions
The
Group companies are claimed to be positioned at either number one or two in
their respective businesses. For instance, the Group claims to be number one in
forging and machined components, axle aggregates, wheels and alloy steel. The
technology used by the Group in its mainline business of auto components and
other businesses, is claimed to be state-of-the-art. The Group invests in
forging technology to enhance efficiency, production quality and design
capabilities. The Group's emphasis on technology can be gauged from the fact
that in the 1990s, it took the risky decision of investing Rs. 100 crore in the
then latest forging technology, when the total Group turnover was barely Rs.
230 crore. Information technology is applied for product development, reducing
3 production and product development time, supply-chain management and
marketing of products. The Group lays high emphasis on research and development
for providing engineering support, advanced metallurgical analysis and latest
testing equipment in tandem with its high-class manufacturing facilities.
Being
a top-driven group, the pattern of strategic decision-making within seems to be
entrepreneurial. There was an attempt to formulate a five-year strategic plan
in 1997, with the participation of the company executives. But not much is
mentioned in the business press about that collaborative strategic decision-making
after that.
Recent
strategic moves include Kalyani Steels, a Group company, entering into a joint
venture agreement in May 2007, with Gerdau S.A. Brazil for installation of
rolling mills. An attempt to move out of the mainstream forging business was
made when the Group strengthened its position in the prospective business of
wind energy through 100 percent acquisition of RSB consult GmbH (RSB) of
Germany. Prior to the acquisition, the Group was just a wind farm, operator and
supplier of components.
Questions
1. What is the motive for internationalization
by the Kalyani Group? Discuss.
2. Which type of international strategy is
Kalyani Group adopting? Explain.
Case VI -CORPORATE RESTRUCTURING OF THE INDIAN
REAILWAYS
On 16
April 1853, a locomotive pulling 14 carriages and 400 people left what was then
Bombay, to a 21-gun salute, and shuttled to Thane, 34 km away. The journey took
about 75 minutes. That was the way Indian Railways was born. Some estimates
consider the Indian Railways as the world's largest commercial enterprise in
terms of the number of employees.
Indian Railways is a departmental undertaking of the
Government of India. The Central Ministry of Railways oversees the policy
making for the Indian Railways and is headed by a union minister. There are
some ministers of state holding specific responsibilities. The administration
of Indian Railways is done through the Railway Board headed by a chairman and
having six members.
There are 16 railway zones, each headed by a General Manager
who reports to the Railway Board. The zones are divided into divisions under
the control of divisional railway managers. There are 44 functional
departments, including those of engineering, mechanical, electrical, signal and
telecommunications, accounts, personnel and operating, commercial and safety
branches. At the operational levels, there are station superintendents and
station masters who control individual railway stations. Apart from the Indian
Railways, the Ministry also has a number of public sector enterprises under its
administrative control. There is an autonomous organization called the Centre
for Railway information System, dedicated to developing specialized application
software for the railways.
The financial matters of the Indian Railways are dealt with
through an elaborate system involving the parliament of India down to the
accounts departments at the divisional headquarters. The Railway budget is
presented every year and passed by both houses of the parliament. The budget is
based on the expected traffic and the projected tariff and capital and revenue
expenditure. Dividends are paid to the Central government on the capital
invested. Indian Railways is subjected to the same audit control as other
government ministries and departments.
The Indian Railways is Asia's largest and the world's second
largest rail network under a single management. It is a multi-gauge,
multi-traction system covering over 60,000 route kilometers, with 300 railways
yards and 700 repair shops and covers most of the country's vast geographical
spread. The rolling stock fleet of the Indian Railways comprises 7,566
locomotives, 37,840 coaches and 222 million freight wagons. With a workforce of
around 1.4 million, it runs more than 11,000 trains daily.
The Indian Railways has evolved
into a vertically integrated organization. Various units are engaged in
designing, manufacturing and maintaining the rolling stock, running
institutions such as hospitals, schools, housing estates and hotels and
catering. It issues licenses to a large number of uniformed porters and
authorized hawkers. These are only some of the major activities that the Indian
Railways perform.
There are many problems facing
the Indian Railways. Among these, the major ones are:
·
Cross-subsidisation of passenger and freight
tariff
·
High energy and fuel costs
·
High accident rate
·
Antiquated communication, safety and signaling
equipment.
·
Ageing infrastructure including rail tracks and
bridges.
·
High establishment and personnel costs.
·
Emerging competition from low-cost airlines.
Many areas of the Indian
Railways are in need of improvement. Several actions have been taken over the
years that include:
·
Upgrading technology, especially the application
of IT
·
Improving the quality of railway services
·
Production of better quality locomotives and
·
Introduction
of fast long-distance trains
·
Addition
of value-added services such as introducing banking facilities on trains.
A
Status Paper on the Indian Railways was issued May 1998, followed by another in
2002. These status papers underlined issues confronting the Indian Railways and
possible options. The Status Paper-1998, for instance, focused on the
strategies related to honing the marketing capability for bulk and non-bulk
freight and passenger services, reducing operating costs, evolving a financial
strategy, bringing about cultural change and addressed issues of concern
in areas such as research and development and IT. Similarly, the status paper
of 2002 presented several issues and posed several questions related to its
functioning.
A
report published in 2001 by a government appointed group chaired by Rakesh
Mohan, now the deputy governor of Reserve Bank of India, called for a radical
restructuring of the Indian Railways. The main thrust of its recommendations was
on shedding the non-core activities such as catering and manufacturing not
related to its main activities of passenger and freight transportation and
becoming a focussed organisation.
Freight
has been the key revenue earner for Indian Railways. The target for 2007-08 is
at 785 million tonnes. The market share of freight traffic had been on the
decline over the last few decades, owing to improvements in road
infrastructure. To arrest this decline, it became imperative to: enhance
customer responsiveness through cargo visibility and information dissemination,
reduce operating expenses and improve asset utilisation. In order to achieve
these aims, the Indian Railways installed a computerised Freight Operations
Information System, with the assistance of CMC Limited.
There
is much hype around the financial turnaround of the Indian Railways. Here, the
major achievements have been in the areas of improved freight and passenger
earnings, gross traffic revenue, higher cash surplus, higher net revenue,
better operating ratio and return on capital. For instance, the Indian Railways
is proud of its achievements in terms of an above 78 per cent operating ratio
and a 20 per cent return on capital in 2006- 2007.
Overall,
the Indian Railways have benefited from several managerial initiatives taken
over the recent past, such as corporatisation of many of its activities and
hiving off, separate companies to perform functions performed in-house earlier.
For example, the Indian Railways Catering and Tourism Corporation took over the
non-core activities of catering while Rail Tel Corporation was formed to create
the optic fibre network for communications. Another subtle manner of change
seems to be the creeping nature of privatisation of non-core services and
adoption of modern business methods of marketing and human resource management
to improve operational efficiency. These seem to be working though critics say
that the increase in the general economic activity and overloading of wagons is
the cause of this improved short-term performance.
Certain
inherent issues have become a part of the Indian Railways heritage. Among these
are: overdependence on freight business, much of freight business arising from
a select few commodities, passenger traffic being concentrated in low-yield
suburban traffic and high density of traffic in the certain areas coupled with
under-utilised assets and facilities in others. The fundamental issues of the
dilemma whether Indian Railways is an organisation in the nature of a public
utility, designed to discharge social obligations, or is it a commercial
orgarnisation for which financial performance and operational efficiency are
imperative still remain.
Questions
1. Comment on the steps taken to
reduce the extent of vertical integration at the Indian Railways. Suggest a few
more measures that could be taken.
2. Discuss the measures taken for
corporate restructuring of the Indian Railways, in your opinion, are these
adequate for dealing with the problems faced? Why?
3. Propose the basic elements of a corporate
turnaround for the Indian Railways.
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