The global economic crisis, and the downturn which Indian industry and business is experiencing, are not novel events. They occur periodically, though the intensity varies. Undoubtedly, it is hard to predict when a booming economy will give way to a downturn, and hardly anyone had predicted the current events. Those companies which recognise the possibility of a downturn and plan for such an event by building internal strength, are likely to emerge stronger after a business downturn. Without such a plan, the ability to deal with an adverse environment will be limited.
The ability of a company to deal with difficult situations is to a large extent dependant on the mental strength of the top management, as well as the organisational culture. The most important requirement is to remain positive and not develop a negative, fatalistic approach. It should be remembered that competitors would also be facing similar problems and it is up to you to find the better solution. It is the responsibility of the CEO to ensure that this positive attitude is shared by others in the organisation, and the temptation to blame external factors for falling sales and profits is resisted. Managers act as if they are no longer in control of events, and the morale drops. If this happens, the company will indeed have a very difficult time.
A study of past downturns will show that some companies always perform better than others. That should help give confidence that it is entirely possible to overcome difficulties. In the case of the car industry, some dealers are actually able to increase sales, while others decline. The successful ones do not accept defeat. They look for, and find, innovative solutions to increase sales and profits and keep up the morale of their employees.
It is very hard for a company to make significant reductions in costs, if the employees in that company, including the workers, are not used to working as a motivated team furthering the prosperity of the company, and looking for cost reductions as a normal way of life. One of the first lessons we learnt when Suzuki became a partner was that the Japanese style of management was developed to create exactly this environment in companies. This inner strength enabled Japan to overcome the huge impact of the increase in oil prices after 1973 — Japan imports all of its energy. Japanese companies also managed to survive and grow as the Yen appreciated from about 230 to the dollar in 1983 to between 90 and 100 in just five years after that. If the Japanese companies could overcome prolonged economic problems, it is possible even for Indian companies they can successfully overcome the current downturn.
Maruti adopted the Japanese style of management and succeeded in building a highly motivated set of managers, engineers and workers. From the early days of Maruti, their approach was to find solutions to problems and not look for alibis as to why a task could not be successfully completed on time. The workers realised that their long term interests lay in ensuring the prosperity of the company, and this could be best achieving by a positive, cooperative and interactive relationship with the management. It was not easy to make this happen in a public sector environment, under all the rules and regulations which applied to government companies. The top management had to spend a great deal of time educating the workers and sharing information with them. The confidence and trust of the workers had to be won by management setting an example by their own actions, by ensuring that workers were treated in a fair and transparent manner, and by sharing the prosperity of the company with all employees.
The growth and profitability of Maruti is well known. The productivity of workers has continued to rise over the years. Despite these successes, cost cutting has remained a way of life, with quality circles and Kaizen being the means of involving workers in this activity. In 1995, savings from quality circles were Rs 75 crores. Ten years later, savings per year are still at a similar level. The workers have now been requested to intensify their efforts to help out in the current difficult times. The probability of good results is high, given the fact that they know how to go about cutting costs.
Maruti experienced difficult operating conditions for the first time around in 1990-92 because of the severe foreign exchange shortage conditions and high inflation and interest rates. Yet sales increased in 1990-91 to 123,000 from 118,000 in the previous year. 1991-92 was perhaps the most difficult year, but we could sell 121,000 vehicles, and still made a profit of Rs 36 crores, a small decline from the previous year. This was possible because of the ‘will do’ approach of the organization.
The next crisis came as a consequence of the dispute between the Government and Suzuki. In 2001 Maruti made the only loss ever. The bounce back was fast, as a result of concerted efforts by the entire organisation. A challenge of increasing productivity by 50% and reducing material costs by 30% over the next three years was taken up and successfully implemented. This could not have been done without the full cooperation of all the employees as well as vendors. Another 30% reduction in material costs was achieved in the next three years ending 2008.