Basic Organization Designs

By what they say and do, senior managers help shape their organizational culture and influence the mindset and behavior of employees. But sometimes employee behavior can become institutionalized and serves as a hindrance to performance then it is not in step with the context the organization operates in.

Bajaj auto was one of India’s leading companies till the 1970s. In 1980, Bajaj Auto was the top scooter manufacturer in India, and there was a ten year waiting list for the Bajaj Chetak. Bajaj Auto maintained its leadership position trough operational efficiency and stringent control on costs, at a time the Indian market did not have much to choose from in terms of quality, features, or models. Used to market leadership, Rahul Bajaj once famously remarked that he did not need a marketing department. Innovation, design orientation, and service orientation were low consistent with the almost monopolistic market position of Bajaj Auto.

However, the 1980s brought liberalization of the two wheeler industry with relaxation in capacity licensing and foreign collaboration. All major global two wheeler manufacturers including Honda, Suzuki, Yamaha, and Piaggio started entering the Indian market through collaborations or joint ventures. In the 1990s came liberalization, and with it, sweeping changes in demographic patterns and consumer preferences. The Indian consumer started to tilt towards motorcycles.

Scooter sales continued to drop, and industry analysis started writing of Baja auto as a leading player in the two wheeler industry.

Around this time, Rajiv Bajaj entered the fray. Rahul’ son came back to India, freshly armed with a master’s degree in engineering from Warwick, UK. He quickly realized that the market had changed and that Bajaj auto to rethink its strategy carefully in order to reposition itself in the two wheeler industry where consumer preferences were rapidly changing from scooters to motorcycles. Motorcycles had been a peripheral business at Bajaj Auto till now, and the resistance to re-orient from scooters to motorcycles was slowing down the change process.

Moreover, quality and design orientations had to change. The customer was becoming more quality conscious and much more demanding in terms of design, convenience and performance parameters like power end fuel efficiency. Rajiv Bajaj was used to operating his factories efficiently by the end the old norms of cost cutting and production efficiency. Innovation and R&D were never the focus areas. Employees are Bajaj Auto, long used to unchallenged market leadership, was set in their old ways.

To Rajiv looking at the operating without the baggage of the past, it was time for drastic changes. He decided to set up a new, leaner and more efficient factory at Chakan, 45 kilometers from the head quarters. The objective was to create a break from the past systems and equipment that were rigid inflexible and incapable of the quality orientation. It was part of Rajiv’s dream to be able to produce Japanese quality in India quite part apart the rigidities of the systems and the equipment, Rajiv Bajaj realized that what they were trying to do would be difficult at the existing plants because mindsets had to change. Rajiv wanted to start a new plant with a totally new workforce and work culture that could compete with the world’s best.

Chakan was started as an experiment. There were no workers. Everyone was staff Rajiv was quick to take advantage of the easy and relatively inexpensive availability of diploma engineers and R&D scientists in India. The old factory at Akurdi has 20 percent daily wage workers, 80 percent skilled workers and no engineers at all on the shop floor. At Chakan, the workforce consisted of 80 percent diploma engineers and 20 percent skilled workers. Wages averaged just Rs 12,000 per month for engineers at Chakan against Rs 11,500 for workers at Akurdi.

The hidden savings came from productivity gains. Since the productivity of the engineers as several times higher, cots decreased. The company was also able to increase R &D, producing many more new designs, which allowed Bajaj to establish itself in the two wheeler industry and even take on market leader Honda. The advantage of using fresh workforce was that they did not carry any baggage from the past which made more open to learning and innovation. Bajaj Pulsar the hugely successful motor cycle from Bajaj was indigenously developed at the Chakan plant, and more than one million of them have been rolled out of the Chakan plant already. Chakan has been producing 2,400 two wheelers a day, at a productivity level of three vehicles per employee, as opposed to 0.8 vehicles at the Akurdi factory.

The lesson is clear. A highly successful organization in one set of conditions can go into decline when conditions change. The culture of an organization is often the most difficult to change but can be lasting source of organizational performance.