Business strategy management

THE INDIAN INSTITUTE OF BUSINESS MANAGEMENT AND STUDIES

SUB: Business Strategies MAX MARKS: 100

Note:

Attempt Any Four Case Studies

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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 cen-

tral 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 tak ing 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 op-

erate 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 de velop 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

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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

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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?

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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

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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

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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.

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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

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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.

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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.

Questions

1. In your opinion, what is the distinctive competence of HelpAge India?

2. Prepare a strategic advantage profile for HelpAge India.

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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

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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.

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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

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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.

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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

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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.

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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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