Rbs Hero Honda Motors Limited Final Submission

Resource Based Strategy  Project HERO HONDA MOTORS LTD  Submitted to: Prof. Manoj Thomas

Group Members:  Satadru Bagchi  ‐ G08 – 088  Soumitra Dhali – G08 – 090 

2

Contents

Page

1. Introduction 1.1. Hero Honda Group & Hero Honda Motors Ltd.

3

1.2. Two - Wheeler Industry in India

4

1.3. Strategic Intent of HHML (Vision & Mission)

10

1.4. Key Milestones

11

2. Resource Analysis 2.1. Financial Resources

13

2.2. Physical Resources

16

2.3. Human Resources

17

2.4. Technological Resources

19

2.5. Reputation

20

2.6. Leadership

22

2.7. Value Chain Analysis

24

2.8. Slack

29

2.9. Stretch & Leverage of the Resources

30

3. Corporate Parenting & Critical Success Factors: Hero Group

34

4. Competitive Advantages of HHML

35

5. References

37

3 1. Introduction

1.1. Hero Honda Group & Hero Honda Motors Ltd.

"Hero", the brand name symbolizing the steely ambition of the Munjal brothers, came into being in the year 1956. From a modest manufacturer of bicycle components in the early 1940's to the world's largest bicycle & two-wheeler manufacturer today (Hero Honda Motors Ltd. was started in the year 1984 as a JV between Hero Group & Honda Motors, Japan), the odyssey was fuelled by one vision - to build long-lasting relationships with everyone, including workers, dealers and vendors. This philosophy has paid rich dividends through the years.

Hero, a name synonymous with two-wheelers in India is today a multi-unit, multi-product, geographically diversified Group of companies. Through fully integrated operations, group roll its own steel, make critical components such as free wheels for their bicycles, and have the foresight to simultaneously diversify into myriad ventures, like product designing, IT enabled services, finance and insurance, just to name a few.

Like every success story, Hero's saga contains an element of spirit and enterprise; of achievement through grit and determination, coupled with vision and meticulous planning. Throughout its success trail, the Hero Group and its members have displayed unwavering passion of setting higher standards for themselves and delivering simply the best to their customers.

"Engineering Satisfaction" is the prime motive of the Hero Group and it has become a way of life and a part of the work culture of the Group. This is what drives the Group to seek newer vistas, adopt faster technology and create quality driven products to the utmost satisfaction of customers, partners, dealers and vendors.

From now on, we would mean Hero Honda Motors Ltd. whenever we state either “Hero Honda” or “HHML” and the Hero Group in totality when we state simply “Hero”.

4 1.2. Two – Wheeler Industry in India

Automotive market in India (2007-2008) The automotive market of India is dominated by two – wheelers which constitute about ¾-th of the entire market.

Passenger Vehicle 16.04% Com m ercial Vehicle 5.05% Three w heeler 3.78%

Tw o w heeler 75.13%

The manufacturing facilities for all these automotive players are well – spread across the country with the east zone having the least of participation. The following figure shows the spread. The zones which are circled show the presence of the two – wheeler manufacturers.

5

Delhi-Gurgaon-NoidaGhaziabad Ludhiana

Haridwar

Pitampu Jamshedpu Rajkot-Halol

Mumbai-Pune-Nasik Aurangabad

Kolkata

Hyderaba

Chennai Bangalore Hosur

There are many factors which affect the India automotive industry as a whole which is analyzed in the following figure. These factors drive the industry & make it competitive globally. India is slowly becoming the manufacturing hub for the automotive sector.

6

… Overall  … …

economic   growth   Lower duties  & taxes  Policy impact  on oil prices 

Government    Policies 

 

… Growth in   Income  levels

… Easier  financing 

… Lower interest 

… Contemp orary  products 

Indian  Automotive  Industry 

New Product  Launches  

… Shorter 

loans 

… Fast paced 

Increasing  Consumer  Demand  

…

life cycle  

…

… Export   Competitiveness 

… Reduced cost   …

to consumer   India emerging as a  manufacturing hub 

Cost  Competitiveness 

urbanization  (28‐40 % by  2020)  Middle class  expanding by  30‐40 mn  every year  Poor public  transport  system 

After analyzing the drivers, let’s take a look at the projected sales in the automobile sector.

Potential Vehicle sales in India in 2015 - 16 (in mn)

0.87 27.8

2015-16

0.64 2.65

0

5

10 Cars

CVs

15 Two wheelers

20

25

Three Wheelers

30

7

Key insights into the projections are: •

Sale of motorcycles in India is likely to touch 10 million mark by 2010 as per Frost and Sullivan report.

•

The size of the Indian automotive industry is expected to grow at 13% p.a over the next decade to reach around US$ 120 - 159 bn by 2016.

•

The total investments required to support the growth is estimated at around US$ 35 40 bn.

Now turning our focus into the two – wheeler industry we find that motorcycles dominate the industry.

8 Players in the two – wheeler industry in India All the manufacturers in the automobile industry can be broadly classified into the following categories: ¾ Major players are: – Hero Honda Motors Ltd. – Bajaj Auto Ltd. – TVS Motor Company – Honda Motorcycle & Scooter India Ltd. ¾ Minor players are: – Suzuki Motorcycles India Ltd – Yamaha – Royal Enfield (Niche Segment) ¾ New Entrants – Mahindra & Mahindra (Acquired Kinetic Motor Co. Ltd. in 2008) – Mahabharat Motors (Will start producing TVS branded 2-wheelers in Apr.’09) ¾ Other Players – Manufacturers of electric two – wheelers such as Yo Bikes

9 Brief Details about Major Competition & Domestic Two-Wheeler Market Share (2006-’07) BAJAJ Second largest two-wheeler manufacturer and the largest three-wheeler manufacturer in India. New product launched (Bajaj Discover) in 125cc category in July 08. Four new product launches are proposed in this year itself. Bajaj Auto has seen August sales decline by 3.7%. Its sales growth was virtually flat during the April-August period.

TVS TVS is the third largest two-wheeler manufacturer in India. It established a manufacturing facility in Indonesia as well. TVS entered into a JV in Jun 2008 with Mahabharat Motors of Kolkata to increase presence in eastern region. TVS launched the last product Flame in March 2008. TVS Motor has also seen sales stagnate, with a growth of only 1.15% between April and August. Honda Motor Has recently entered the Indian market through its direct subsidiary (in addition to its joint venture Hero Honda).

10 1.3. Strategic Intent of HHML (Vision & Mission) ƒ

Vision/Mission

Mission “Hero Honda’s mission is to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of its customers. At the same time maintain the highest standards of ethics and social responsibilities.

This mission is what drives Hero Honda to new heights in excellence and helps the organization forge a unique and mutually beneficial relationship with all its stake holders.”

Mandate “Hero Honda is a world leader because of its excellent manpower, proven management, extensive dealer network, efficient supply chain and world-class products with cutting edge technology from Honda Motor Company, Japan. The teamwork and commitment are manifested in the highest level of customer satisfaction, and this goes a long way towards reinforcing its leadership status.” ƒ

Objective & Values The Hero Group philosophy is "To provide excellent transportation to the common man at easily affordable prices and to provide total satisfaction in all its spheres of activity."

The group philosophy clearly states what the group objectives are and stresses the focus on – customers, providing reliable and affordable mobility for the masses and other stakeholders like employees, suppliers, distributors, society and environment at large.

Apart from being customer-centric, the Hero Group provides its employees with a fine quality of life and its business associates (suppliers & distributors) with a total sense of belonging, thus strengthening the bond that is already deep-rooted.

11 1.4. Key Milestones

YEAR 1983

Milestones Joint Collaboration Agreement with Honda Motor Co. Ltd. Japan signed Shareholders Agreement signed

1984

Hero Honda Motors Ltd. incorporated

1985

First motorcycle "CD 100" rolled out

1987

100,000th motorcycle produced

1989

New motorcycle model - "Sleek" introduced

1991

1992

1994

1997 1998

New motorcycle model - "CD 100 SS" introduced 500,000th motorcycle produced Raman Munjal Vidya Mandir inaugurated - A School in the memory of founder Managing Director, Mr. Raman Kant Munjal New motorcycle model - "Splendor" introduced 1,000,000th motorcycle produced New motorcycle model - "Street" introduced Hero Honda's 2nd manufacturing plant at Gurgaon inaugurated 2,000,000th motorcycle produced New motorcycle model - "CBZ" introduced Environment Management System of Dharuhera Plant certified with ISO-

1999

14001 by DNV Holland Raman Munjal Memorial Hospital inaugurated - A Hospital in the memory of founder Managing Director, Mr. Raman Kant Munjal 4,000,000th motorcycle produced Environment Management System of Gurgaon Plant certified ISO-14001

2000

by DNV Holland Splendor declared 'World No. 1' - largest selling single two-wheeler model "Hero Honda Passport Programme" - CRM Programme launched New motorcycle model - "Passion" introduced

2001

One million production in one single year New motorcycle model - "Joy" introduced 5,000,000th motorcycle produced

12 New motorcycle model - "Dawn" introduced 2002

New motorcycle model - "Ambition" introduced Appointed Virender Sehwag, Mohammad Kaif, Yuvraj Singh, Harbhajan Singh and Zaheer Khan as Brand Ambassadors. Becomes the first Indian Company to cross the cumulative 7 million sales mark Splendor has emerged as the World's largest selling model for the third calendar year in a row (2000, 2001, 2002)

2003

New motorcycle model - "CD Dawn" introduced New motorcycle model - "Splendor +" introduced New motorcycle model - "Passion Plus" introduced New motorcycle model - "Karizma" introduced New motorcycle model - "Ambition 135" introduced Hero Honda became the World No. 1 Company for the third consecutive year.

2004

Crossed sales of over 2 million units in a single year, a global record. Splendor - World's largest selling motorcycle crossed the 5 million mark New motorcycle model - "CBZ*" introduced Joint Technical Agreement with Honda renewed Total sales crossed a record of 10 million motorcycles Hero Honda is the World No. 1 for the 4th year in a row New motorcycle model - "Super Splendor" introduced 2005

New motorcycle model - "CD Deluxe" introduced New motorcycle model - "Glamour" introduced New motorcycle model - "Achiever" introduced First Scooter model from Hero Honda - "Pleasure" introduced

2006

Hero Honda is the World No. 1 two-wheeler co. for the 5th year in a row

2008

Hero Honda is the World No. 1 two-wheeler co. for the 8th year in a row

13 2. Resource Analysis The resources that HHML has are analyzed from various viewpoints so as to ascertain whether it has actually achieved competitive advantage by not only utilizing, but also stretching & leveraging its resources. Additionally, we tried to extricate the interlinkages between the value chain and the resources of HHML. Further, we tried to establish what “slack” HHML has in the resource pool to tackle adverse situations. 2.1. Financial Resources We begin the resource analysis of Hero Honda Motors Ltd. with the break up of the capital structure of the firm & the financial comparison of different players in the two – wheeler segment. The company is 100% debt free with the break up of the capital structure as follows:

EQUITY SHAREHOLDERS (48%) (26%)

(26%)

26% of the shares are each owned by Hero Group & Honda Motors, Japan while the rest is owned by equity shareholders. Apart from this Honda Motors, Japan gets a royalty fee of 25% of the contribution margin because of the technical - know how provided to Hero Honda. Needless to say, this has been one of the most successful overseas joint ventures by Honda Motors, Japan. There are no such schemes like ESOP’s in place. However, employees are free to take the company’s shares at their own discretion. It is interesting to note that in spite of the global meltdown, Hero Honda’s net profit has increased by 47% as in the first three quarter as compared to last financial year.

14 Now, let us take a look at the profit & loss account & balance sheet of Hero Honda Motors Ltd. & compare those with that of its main competitors i.e TVS Motors & Bajaj Auto. The analysis is done for financial year 2007 – 08. HMSI is not included as it is not listed. PROFIT & LOSS ACCOUNT HHML

BAJAJ

2007-08 2006-07

% AGE

CHANGE 08

Gross Sales 12038.53 11542.04 4.30 Less excise duty Net Sales Other income Total Revenue

2007-

TVS

2006-07

% AGE

2007-

CHANGE 08

2006-

% AGE

07

CHANGE

9689.95 10606.09 -8.64

3683.53 4473.44 -17.66

1706.73 1642.08

1026.66 1313.86

464.03 618.48

10331.8 9899.96 4.36

8663.29 9292.23 -6.77

3219.5 3854.96 -16.48

185.42

505.55 783.82

90.85

9168.84 10076.05 -9.00

3310.35 3920.89 -15.57

8034.11 8348

3274.98 3830.04

189.85

10517.22 10089.81 4.24

65.93

Expenditure + Interest + 9106.94 8843.71 Depreciation PBT

1410.28 1246.1

13.18

1134.73 1728.05 -34.33

35.37

90.85

-61.07

PAT

967.88

12.82

755.95 1237.96 -38.94

31.77

66.6

-52.30

857.89

15 Balance Sheet 2008 BAJAJ

TVS % Change

2007-08 from

HHML % Change

2007-08 from

2006-07

2007-08

2007

% Change from 2007

Share Capital

144.68

42

23.75

0

39.94

0

Reserves & surplus

1442.91

-73

797.83

1.8

2946.3

21.25

Loans (Secured & Unsecured)

1334.34

666.34

0

1043.05

132

Fixed Assets

1292.82

4

1548.7

Current assets

1649.71

774.79

936.78

Current Liabilities

1877.29

566.77

1824.74

14.2

The net sales for Hero Honda has increased by 4.36% while that of its competitors Bajaj Auto & TVS Motors has decreased by 6.77% & 16.48% respectively. During this time Hero Honda has been able to regain its market share from a low of 44% to current levels of 56%. The total revenue for Hero Honda has increased by 4.24% while that of its competitors Bajaj Auto & TVS Motors has decreased by 9% & 15.57% respectively. PAT for Hero Honda has increased by 12.82% while that of its competitors Bajaj Auto & TVS Motors has decreased by 39% & 52% respectively. The reason for this success of Hero Honda has been due to the adoption of a two pronged strategy. First, it introduced products in the 150 c.c segment along with variants of its existing product portfolio. Also, it undertook a program called the “Rural Vertical” in which it focused itself in improving the distribution network in the rural areas so as to access the untapped market. Looking at the balance sheet we find that the reserves & surplus for Hero Honda has increased by 21.25% while that of its competitors Bajaj Auto has decreased by 73% & for TVS Motors has increased by a meager 1.8%. The increase in fixed assets for Hero Honda

16 has been due to the massive investment in green field project – a state of the art manufacturing facility called the “The Shrine of Technology” at Haridwar. Comparing the operating ratios we find that HHML has been performing better than its nearest competitors. FOR FINANCIAL YR. 2007-08 HHML

BAJAJ

TVS

Net Profit Margin (in %)

PAT / SALES

8.04

7.8

0.86

Assets Turnover Ratio

SALES / TA

4.84

3.29

2.03

2.2. Physical Resources Hero Honda has got three manufacturing facilities at Dharuhera & Gurgaon in Haryana & Haridwar in Uttarakhand. The production capacity of the first two plants is 6500 vehicles per day while for the third plant is 3500 vehicles per day. The cycle time for vehicle production is maintained at 18 secs. Its distribution network is controlled by regional offices & area offices & includes about 3000 dealers, stockists & SSP’s (Service & Spare parts) across the length & breadth of India. The concepts of Lean Manufacturing are applied in all the plants to improve performance & drive down cost.

2.3. Human Resources The following model has been developed by Gallup to understand the importance of a fit between a person & the organization he is working to the performance of the organization.

17

A GOOD BUSINESS SENSE To reliably influence these . . .

STOCK INCREASE

REAL PROFIT INCREASE

SUSTAINABLE GROWTH

. . . these must be managed.

ENGAGED CUSTOMERS

ENGAGED EMPLOYEES

ENTER HERE

GREAT MANAGERS IDENTIFY STRENGTHS

THE RIGHT FIT

S - Curve for Success According to this model, stock price of a company depends upon its sustainable growth which in turn depends upon engaged customers, engaged employees & how they are managed. So, it becomes imperative to find the right fit between the - would be employee to the organization.

The following are the salient features of Hero Honda managing of human resource.

Recruitment •

Use of PI as one of the tool

•

Right Fitment - both culturally and Job based

•

Start with MDP – specific to the requirement and

Orientation

understanding the products Development & Learning •

Functional & Behavioral input in single program, through consultant networking

18 Managing Performance •

High performers – lateral movement, special assignment, developmental program, Coaching & Counseling

•

Low performer – Development, coaching & counseling

Employee Communication •

Stand-Up meetings •

Open House

•

Monthly Communication Meetings

•

Various competitions like debate, speech, poem,

Employee Involvement

poster, quiz, slogan •

Cross-functional teams

•

Suggestion scheme

•

Quality circles

•

Idea camps

Even IT services are extensively used to support employee welfare. This includes Intranet •

Employee Policies

•

Leave Application System

•

Resource Reservation System

•

Bulletin Board

•

ESS •

Salary

•

Loan status

•

Attendance

19 SOME OF THE UNIQUE PRACTICES AT HERO HONDA MOTORS LTD Joint prayers & exercises – The employees start their shift by saying joint common prayers followed by physical exercises and discussion on a theme for that day. As part of this, the employees get together at the atrium. One of them acts as a leader of the gathering. All of them recite a prayer wherein they pray for the well – being of the world and freedom from pain, fear & misery. They pray for the success of their work. This helps them in affirmation towards achievement of the company’s targets. Another leader leads the gathering for undertaking physical exercises which propel them toward better physical & mental efforts in achieving the company’s targets.

Self managed team members – The operator on the assembly line also undertakes quality checks and maintenance activities apart from operation related activities. As a part of this, the operator identifies using prescribed systems, the quality check points maintenance check points. These check – points help him in improving quality and reducing break downs. This results in having post – production quality checks and scheduled overhauls, which considerably results in saving time, material & manpower.

Quality Circles – Cross functional teams work together to solve factory related problems using quality control techniques. As a part of this, the employees voluntarily form their teams after trained by the qualified trainers in applying the above. The team identifies and selects problems. The solutions are presented to the senior management for approval.

2.4. Technological Resources

The company believes in the concept called World Class Manufacturing. Its major ingredients are shown in the figure below -

20 QUALITY

5 S SYSTEM

ZERO INVENTORY CONCEPT FULLY INTEGRATED VALUE CHAIN

TPM

WCM

DIRECT ONLINE SYSTEMS LEAN & FLEXIBLE MANUFACTURING

The Direct Online System (DOL) is similar to JIT. Here the vendors are selected for DOL category based on a variety of parameters such rate of parts being defective & replaced in warranty. In order to remove bottlenecks & improve quality of work fully integrated robotic lines are used such as in Aluminium phase (for manufacturing cylinder heads, crankcase etc.) and in weld & paint shops.

Flexible manufacturing system is followed where in any product assembled in any assembly line.

2.5. Reputation

Hero Honda has toiled hard for the brand image it now has. This has been achieved not only by the continued excellence of its products & services, but also due to the several of the following social & environmental initiatives that it has under taken –

Safety, Health & Environment Policy – Extensive use of incinerators, effluent treatment plants, sold waste disposable systems. It has also been awarded ISO 9001, ISO 14001, OHSAS 18001 certifications.

Rainwater harvesting system – It has an extensive system of rain water harvesting as is shown in the following figure:

21

CSR Initiatives – Another name for the Delhi – Jaipur Highway is the “killer highway”. This is because this highway is notorious for accidents. In order to take care of such casualties, Hero Honda has opened “The Raman Munjal Memorial Hospital”. The hospital also caters to the needs of the people of the rural areas of Haryana through mobile dispensaries etc. “The Raman Munjal Vidya Mandir” was opened to provide quality education to the poor & needy.

Hero Honda Traffic Park & Ride Safe Program – This was initiated to teach people traffic rules & riding their vehicles in the most appropriate manner to avoid accidents.

Promotional Activities – Time and again Hero Honda has been associated with the major sporting events in the country like golf & cricket. It has sponsored reality shows like MTV Roadies & Sa Re Ga Ma Pa.

22 2.6. Leadership

Dr. Brijmohan Lall Munjal, Chairman, Hero Honda Group, is one of the best known firstgeneration entrepreneurs in India. Dr. Munjal started Hero group right from the scratch along with three of his brothers after shifting base to Ludhiana, India from Pakistan after 1947 and built a business empire of US$ 3.2 billion in a span of nearly six decades comprising of 20 companies in diverse fields including auto parts, bicycles, motorcycles, education, BPO, IT software etc.

From a modest beginning as bicycle component manufacturer in the early ‘50s to world’s largest bicycle maker in 1986 till date to world’s largest two-wheeler maker in 2001 and continuing – Hero Group has achieved much within this limited period of time, thanks to the guiding vision and principles of its founding father, Dr. Brijmohan Lall Munjal. The core values that he inculcated from the beginning of his academic life as he attended the Gurukul system of education guided him through thick & thin. The value set, which forms the intrinsic core of his business philosophy, is based on simplicity, honesty, highest integrity & sense of fairness.

Dr. Munjal traversed the road to success with the Hero group following these principles – •

“Trust the instincts”,

•

“Deal with people with compassion”,

•

“Think ahead of time”,

•

“Show others the way through highest form of corporate citizenship”.

The examples for all of the principles just mentioned are easy to find out. Dr. Munjal, never satisfied being only a bicycle component manufacturer, moved up the value chain by becoming a complete bicycle manufacturer in 1956. Through continuous growth and establishing a nation-wide supply & distribution network which was based on mutual trust and relationship, within 30 years of starting, Hero Group became the largest bicycle manufacturer in the world and it continues to be so till date. Hero Group, under the able leadership of Dr. Munjal, pioneered bicycle exporting from India as early as in 1963. Though exports were initially limited to Africa & Middle East, now Hero Group caters to the US &

23 European markets as well. Adoption of key new technologies and providing best-in-class value & performance are the hall marks of Hero Cycles.

At a time when the Indian two-wheeler industry was known by the rusty Bajaj Chetak and other two-stroke engine vehicles, Dr. Munjal revolutionized the industry by bringing the first four-stroke motorbikes to the table. It was a brilliant strategic move. Since these technologies were not indigenously available, he collaborated with the Honda Motor Company of Japan and Hero Honda Motors Ltd. was formed in 1984 as a JV between Honda & the Hero Group. It’s one of the best success stories in India as a collaborative effort between two different cultures and entities. The JV thrived because the roles of the partners were clearly demarcated by the leadership – Honda to provide the technological inputs and overall guidance, Hero Group to provide the manufacturing resources and foot the distribution efforts.

With this, Dr. Munjal ensured cheaper, affordable mobility to the millions of Indians. Not only the four-stroke engines gave better mileage, but these are reliable, less polluting machines which immediately became the darling of the masses and for Govt. regulators as well. He was at the forefront of the campaign by Hero Honda Motors Ltd. - 'Fill it - Shut it Forget it', which brought forth the value-of-money aspect of these bikes and endeared the masses. The testimony to all these efforts came in 2001 when Hero Honda Motors Ltd. became the largest two-wheeler maker in the world with a customer base of over 20 million. Though without teamwork & commitment, all these achievements would not have been possible, it was the vision and zeal of the founder which pushed Hero Group to rise higher and higher and touch the horizons.

Dr. Munjal is not known only by his business acumen, but by his philanthropic activities as well. He spearheads Corporate Citizenship & CSR activities of the Hero Group. In his personal capacity, he is an active Rotarian and he co-ordinates various social initiatives in the capacity of Rotary District Governor.

In recognition of his contribution to Indian industries and society at large, he was conferred numerous awards and recognized, the important among these are – •

Businessman of the Year in 1994 by business magazine "Business India".

24 •

National Award for outstanding contribution to the Development of Indian Small Scale Industry in 1995.

•

In 1999 Featured in Most Admired CEO List of the magazine "Business Barons".

•

The Distinguished Entrepreneurship Award from The PHD Chamber of Commerce and Industry in 1997.

•

Sir Jehangir Ghandy Medal for Industrial Peace in 2000 by XLRI, Jamshedpur.

•

Featured as Ernst and Young Entrepreneur of the year in 2001.

•

The Lifetime Achievement award for "Management" from All India Management Association in 2003.

•

Banaras Hindu University, Varanasi conferred him with a Doctorate; degree of "Doctors of letters" Honoris Causa in October 2004.

•

Awarded "Padma Bhushan" in March 2005 for his contribution to Trade and Industry in 2005.

2.7. Value Chain Analysis

It is quite obvious that Hero Honda possesses some competitive advantages over competition, enabling them to be the largest two-wheeler maker in the world for the 7th year in a row and commanding a hefty market share of 52% of Indian two-wheeler market (Ref. Annual Report, ’07-’08, HHML) and continuing to grow at a healthy rate of 13% (PAT) amid worsening financial crisis and deepening of recessionary influences. We attempt to ascertain the competitive advantages that HHML has by analyzing its value chain. Primary Activities ƒ

Inbound Logistics

From early days, HHML tried to have close integration with suppliers as vendor management is critical for its operation, for the simple fact that 73% of production cost is due to material components. Thus it is essential for HHML to ensure tight control & reduction of logistical cost and/or transaction cost when procuring components. Additionally, reduction of inventory will be an added boon so that working capital requirement will be less.

With these aims, HHML adopted “Just In Time” (JIT) manufacturing philosophy which demanded close coordination between its manufacturing facilities and the vendors and

25 ancillary units. For example, ~ 100 ancillaries are setting manufacturing bases in Haridwar near the newly started HHML plant to ensure integrated supply chain. All these vendors will be connected to the main plant by conveyors to prevent chances of time & material loss due to multiple handling. Efforts are afoot to extend the JIT beyond shop floor, in the operational & strategic decisions of the vendors as well like production planning, capacity expansion etc. In this respect, HHML has succeeded in establishing online real-time connectivity between its operation and that of ~ 72% of its 300 plus-strong vendor base (in 2007-‘08). All these initiatives have helped to reduce transactional & logistical costs and save Rs. 343 per vehicle in 2007-’08. During 2008-09, HHML plans to work with vendors to develop new vendor production facilities. 3rd Party Logistics (3PL) service providers have also been identified for the Haridwar plant — if 3PL is started, this will be a first for any two-wheeler company in India. ƒ

Operations

As was being described above, HHML is probably the only Indian company to have truly mastered the art of JIT manufacturing. HHML also follows Lean Manufacturing, uses high degree of automation levels (full automatic robotic operation in welding and some other specific areas) to ensure high efficiency, low inventory production, with usual benefits like increased cash flow, reduced cash & operating cycles and thus improved working capital conditions. These fully equipped plants where these manufacturing concepts have been applied during plant layout, design & commissioning phases are the unique tangible assets that HHML has.

HHML has three manufacturing facilities at Dharuhera, Gurgaon and Haridwar (newest), with annual production capacity of 4.5 million units. With employee strength being in the range of 4320, the productivity per employee is very high. Further, the concepts of Lean Manufacturing, JIT & Integrated Supply Chain have been applied from the start in Haridwar plant making it highly efficient.

Technological know-hows, design improvements etc for two-wheelers are provided by Honda after the initial design requirements as espoused by customers and market trends put in a structured form by Hero Honda R&D team in India. ƒ

Outbound Logistics

26 HHML feeds the demand in India & exports ~ 95,000 bikes through its well established delivery channels from the 3 plants. The effort is to provide for minimum waiting period or rather filling the regions as per the demand forecasts and market trends. ƒ

Marketing & Sales

Marketing arm of HHML started the hugely successful “Fill it, Shut it, Forget it” campaign years ago to pitch for its better fuel efficiency and thus lower owning cost. It has been a constant strive for HHML’s marketing efforts (in advertisements, in promos) to focus the value for money and reliability of its products and thus attracting new customers and retaining customers as well. To ensure customer loyalty, HHML has come up with Hero Honda Passport Program which gives special privileges to its customers. HHML does not indulge in price wars in an effort to maintain the perception of enduring quality among present & potential customers. Of late, there were complaints from customers that HHML is not dynamic enough to present newer, flashier & more powerful bike models in the premium segment that competitors like recharged Bajaj is offering. Another complaint was that many of the variants offered by HHML have little or insignificant product differentiation which can justify the price difference. HHML has paid heed to these stated & unstated needs of its customers and improved the 4P’s (Product, Price, Place & Promotion). Its offerings now are well accepted in the market.

HHML has roped in popular heartthrob Hrithik Roshan as its brand ambassador to give impetus to its marketing efforts. It has been a constant endeavor of HHML to cater to both urban and rural markets with similar zest, with advertising campaigns and promotional events clearly focusing on the two markets – “Har Gaon, Har Angaan” is the recent rural connect initiative to cover ~ 23,360 villages with a population of 5000 or more by 500 specially trained rural sales executives.

HHML has a conscious strategy of penetrating new markets and unrepresented territories through its distribution network which is made up of dealers, authorized representatives, stockists and SSPs. In March 2001, the company had 826 such customers points in India. By March 2008, this number went up to over 3500. On an all India basis, 50 dealers, 150 SSPs, 267 dealers and 45 city work agents were added within this period.

27 The distribution network of HHML is both wide & deep rooted; it is based on both mutual trust & relationship between HHML & its distributors and HHML’s philosophy of ensuring its partners to grow with its own growth. Trust & loyalty of distribution network is very important in maintaining the leadership position in this highly competitive industry. In fact, HHML’s strength in Supply Chain & distribution network is one of the unique intangible resources that it has; superior brand image & reliability perception of its brand is the outcome of these intangible & tangible key assets. ƒ

Service

HHML has constituted one the best after-sales service network in the industry. Apart from improving the quality of service and easy availability of spare parts, HHML has also focused on cleanliness and other aesthetics of the service stations and added amenities such as airconditioned waiting area, internet browsing and coffee shops etc. to enhance the in-house experience of the consumers at those “customer touch-points”.

To ensure that millions of customers in the rural areas are not left waiting for adequate service as it is impossible for HHML to introduce service stations at every nook & corner of the country, mobile service stations are regularly arranged with prior intimation to public about the route that the mobile workshop would take when passing through that region, so that consumers can come and get their two-wheelers serviced. All these activities are aimed to increase the customer loyalty and thus retaining customers.

The value activities done by HHML in its value chain (both primary & support activities) are given in Fig. IA1. The unique value activities of HHML that is at the heart of its competitive advantages are shown in Fig. IA2.

Virtual Value Chain All the activities that HHML is doing in its Physical Value Chain (PVC) are being augmented multifold by its efforts in establishing and improving the Virtual Value Chain (VVC -the flow of information across its value activities). For example, HHML has implemented SAP ERP package for all necessary modules like production, materials, finance, marketing, assets, quality, sales and distribution so that only single version of right information is available with everybody at any time. It reduced duplication of efforts across many functional areas.

28

 SU PP O RT    AC TI VI TI ES 

Infrastructure 

  Administrative, legal and accounting tasks managed systemwide  

Human  Resource  Management 

Oversee  supplier  &  management  personnel 

Technology  Development 

Procurement 

PRIMARY  ACTIVITIES 

Develop new  virtual teams;  union relations;  oversee workers Invest in new  Streamline  turnaround time  eng. designs,  with suppliers to  bike models;  new   factories,  ship parts  t li Streamline  Source parts,  ordering and  components;  documentation  partner with  systems  key suppliers

Oversee  personnel  involved in  distribution

Oversee  marketing  personnel

Streamline  Work with  shipping time;  dealers to  web‐based  improve selling,  inventory tracking  product mix   Buy media  Purchase  time; work  capacity on  railroads/trucks with  advertisers

Adopt faster  means to order  and receive  components 

Make and  assemble  components  into autos 

Ship to dealers  using  railroads/  trucks; deliver 

Inbound  Logistics 

Operations

Outbound  Logistics

Oversee service  personnel 

Improve service  turn around  time with spl.  Tools & tackles  Source spare  parts & tools;  partner with  key suppliers

After sales  Advertise,  promote product service; Spare  to public; work  parts availablity  with dealerships Marketing /  Sales

Service 

Fig. IA1. Hero Honda’s Business System (Value Activities Mapped in the Value Chain)

Further, HHML has been able to connect real-time with ~72% of its vendors. This ensures seamless flow of information about the products, components between itself and its collaborators beyond the physical boundaries, making the whole process much more integrated & robust, as if the same system is being used across location & plants, irrespective of the ownership. Significant reduction of transaction costs can be achieved in this manner. These aspects are essential factors of its successes in applying the JIT manufacturing philosophy. Dealer Management System & CRM are other examples of VVC for HHML. By managing PVC & VVC together in concert, HHML is able to exploit its value chain much more effectively.

29

 SU PP O RT    AC TI VI TI ES 

Administrative, legal and accounting tasks managed systemwide 

Infrastructure 

 

Human  Resource  Management 

No formal  labour union;   employee  loyalty  

Technology  Development 

Procurement 

PRIMARY  ACTIVITIES 

 

No formal  No formal labour No formal labour  No formal labour  labour union;  union ; employee union; employee  union; employee  employee  loyalty loyalty  loyalty  loyalty

Online real‐time  New design &  tech. from  connectivity  Honda, new    with vendors  factories,   Streamline  ordering &  documentation  system; SAP ERP 

Streamline  Dealer mgt. to  shipping time;  improve selling,  inventory tracking; product mix ;  SAP ERP  SAP ERP 

Buy media  Purchase  time; work  capacity on  railroads/trucks with  advertisers Campaigns ‐ Adopt faster  JIT, Lean Mfg.,  Ship to dealers  “Dhak Dhak Go”; means to order   TQM (initiating),  using   CRM – HH  & receive  World class mfg.,  railroads/  Passport  components; JIT  Automation trucks; deliver  Inbound  Logistics 

Source parts,  components;  partner with  key suppliers

Operations

Outbound  Logistics

Improve service  turn around  time with spl.  Tools & tackles  Source spare  parts & tools;  partner with  key suppliers After sales  service (largest  network) ; Spare  parts availablity 

Marketing /  Sales

Service 

Fig. IA2. Hero Honda’s Competitive Advantages through Value Activities & Virtual Value Chain (Ref. Exploiting the Virtual Value Chain - J F Rayport, J J Sviokla)

2.8. Slack

“Slack” is defined as that cushion of factual or potential resources which allow an organization to adapt successfully to internal pressures for adjustment or to external pressures for change in policy as well as to initiate changes in strategy with respect to the external environment.

Among other indicators of slack based strategies, one is the increase in working capital as a percentage of sales. For Hero Honda, peak selling period is Sept. to Nov. in the year whereas the lean period is Jun. to Aug. During the peak seasons, it sells around 0.5 million twowheelers in a month, which is around 0.1 million more than it can produce in a month with all

30 3 plants running in their full capacity. Earlier, when Haridwar plant was not commissioned, the supply-demand mismatch was even more acute. In order to smoothen this fluctuation in demand and also to ensure that this cyclicality doesn’t impact the operations of the plants, HHML has a strategy in place which can be summarized as that HHML continues to operate the plants during lean seasons at high capacity to build up a reasonable inventory. This inventory increases its working capital considerably in that period and acts as a buffer when demand surges.

2.9. Stretch & Leverage of the Resources

When Hero Honda entered the two-wheeler market in ‘80s, it was shaped very much by the regulatory & bureaucratic forces and has been dominated by 2-stroke scooters & bikes manufactured by Bajaj Auto and some other companies. The 4-stroke technology taken up by Hero Honda was looked at with skepticism, even though it promised higher power-to-weight ratio, higher efficiency (and thus better mileage) and less pollution. But Hero Honda aspired to be the largest player in the industry, the gap between the aspiration & reality being huge.

The promoters of the JV, both Hero Group & Honda of Japan, had a lot of faith & confidence on the eventual success of this strategic alliance, even though it faced a lot of challenges like a violent strike which affected its production facilities in 1987. Even Splendor when it was launched initially had many technical problems. But it stretched & leveraged its resources – the supplier & distribution network (initially based on the reliable & loyal distribution channel of Hero Cycles, which is a group resource) and technological superiority of Honda engines & design to bridge the gap between its aspiration levels & current reality and eventually succeeding & becoming the largest player in the industry.

The Hero Group, as a whole, has firm beliefs in its capability of successfully borrowing & extracting knowledge from numerous technical/strategic alliances & JVs that it has formed over the years as means of resource accumulation in its pursuit of leveraging resources. Apart from the most celebrated JV with Honda, it has established such alliances with numerous other companies. As an underlying theme in all these activities, we can see a general trend emerging – (i) Vertical Integration - this is common for most related diversifications, (ii) Diversification – importance is given here for risk mitigation &

31 opportunity grabbing by moving in unrelated but high growth areas. In the next few paragraphs, some of these are discussed -

(A) Technology Related Partnerships/ Alliances and Joint Ventures •

Hero entered a joint venture for technical and financial participation with one of the world's largest automotive makers, Honda Motor Company Limited of Japan, in 1984 for the manufacture of 100cc motorcycles in India.

•

Hero's quest for a low-budget, fuel-efficient and environment-friendly two-wheeler led Hero Motors to enter into a Technical Collaboration with Steyr Daimler Puch of Austria in 1987 for the manufacture of the 65cc, Porsche-design mini-motorcycles.

•

Munjal Showa Limited was formed in Technical and Financial Collaboration with Showa Corporation, Japan, to design, develop and manufacture of front forks, shock absorbers, struts and gas struts.

•

Sunbeam Auto Limited has set-up a state of the art piston manufacturing facility in technical collaboration with M/S Honda Foundry Company Limited of Japan, the

32 pioneers in the world for manufacturing high-strength lightweight pistons used in light, powerful fuel-efficient engines. •

Munjal Auto Industries Limited has a joint venture with the State-owned Gujarat Industrial Investment Corporation, to cater to the needs of the overseas market.

•

Hero Cycles CR Division was set up in consultation with MECON, Asia's largest engineering consultants and in Technical Collaboration with Wean United, USA.

•

Hero Cycles Cold Rolling Division has also entered into a technical collaboration with Kawasaki Steel Corporation, Japan for the improvement of production yield, elimination of defects, reduction of customer returns and enhancement of maintenance operations against certain predetermined targets.

(B) IT/ITES Related Alliances Munjal-eSystems, the Enterprise-oriented and Software Solutions division of Hero Corporate Service Limited is a microsoft gold certified partner. It is ISO 9001:2000 certified and is today, a dedicated and the most preferred solution center for microsoft business solution.

Navision in the manufacturing sector. It has to its credit many sucessfully completed projects in various industries like automobiles, switchgears, pharmaceuticals, trading, indusrial goods manufacture, education services, IT enabled services etc. Hero Mindmine, the technology based learning solutions provider and training division of Hero Corporate Service Limited, is one of the largest and premier training powerhouses in the country focussed on building BPO/Customer Service Professionals in the sector of Airlines, Automotive, BPO, FMCG, IT, and Pharma. It has alliance with two companies, in order to facilitate the successful training of students and professionals in globally understood Business English: •

DynEd Corporation, which provides quality courseware by combining proven classroom teaching skills with the best of multimedia techniques.

HeroITES, the BPO and Contact Centre solutions provider of Hero Management Service Limited has a strategic alliance with ACS Incorporated, USA, a leading BPO and IT services company. With revenues of US$ 4.35 billion ACS is a Fortune 500 company with

33 more than 50,000 people in nealry 100 locations around the world. With this alliance, HeroITES can provide onshore and nearshore solutions in the customer acquisition and customer interaction segment of the BPO industry. HeroITES and ACS offer a complete range of services to clients from their on-shore, near-shore and off-shore centers across the United States, Canada, Argentina and India. ACS Inc aims at increasing client's prosperity through Customer Care Solutions that exceed industry norms in Service and Value. (C) Product Engineering Related Alliances •

Hero Global Design is the largest Certified Engineering Provider (CEP) of PTC from India. Hero Global Design's alliance with PTC enables the development of elite corps of engineering professionals, an opportunity to work directly with PTC and its customers and to gain expertise as a Pro/ENGINEER Expert throughout PTC's Worldwide Customer Base. It also enables Hero Global Design to provide high quality Legacy Data Conversion Services.

•

Hero Global Design is the exclusive representative of Porsche Design GesmbH (studio) in India.

•

Hero Global Design has a business agreement with Target Design, a leading industrial and automobile design company in Germany.

Horizontal / Vertical Integration Over the years the Hero group has diversified into different businesses in which a pattern of Vertical Integration can be observed. A considerable level of vertical integration in its manufacturing activities has been ample in the Group's growth and led to the establishment of the Hero Cycles Cold Rolling Division, Munjal and Sunbeam Castings, Munjal Auto Components and Munjal Showa Limited amongst other component-manufacturing units. The integration of the automotive business of the group started with the setting up of Majestic Auto Limited, where the first indigenously designed moped, Hero Majestic, went into commercial production in 1978. Then came Hero Motors which introduced Hero Puch, in collaboration with global technology leader Steyr Daimler Puch of Austria. Hero Honda Motors was established in 1984 to manufacture 100 cc motorcycles.

34 3. Corporate Parenting & Critical Success Factors: Hero Group We have already stated that many of the group technical/strategic alliances and JVs are aimed at increasing the vertical integration of the businesses. From the corporate parenting concepts also, these initiatives are falling mostly in the Heartland zone (shown below), i.e., these related diversifications are helped by accumulated competencies of the group as well as complementing the core business as well. The following Parenting Fit Matrix shows how major Hero group companies are placed -

The unrelated diversifications into IT/ITES arena should fall in the Ballast zone. But none of the business ventures are either in Alien Territory or in Value Trap category.

35 The following table shows Critical Success Factors as we found out for the Hero Group for its diversifications in various businesses Critical Success Factor

Marketing

Motorcycle

Bicycle

Mopeds

Yes

Yes

Yes

Supply Chain

Yes

Yes

Yes

Cost

Yes

Yes

Yes

NPI

Yes

Ownership

Equipments

Parts

Parts

Yes

Yes

Yes

Technology

Cost of

Automotive

Yes

Awareness

Efficiency

Bicycle

Yes

Consumer

Operational

Healthcare

Yes

Yes

Yes

Yes

Yes

Yes Yes

Yes

4. Core Competency & Competitive Advantages

Core Competency of Management Thrust on Quality – Hero Honda does not sell the cheapest bikes in the Indian market; instead, the company’s products command a premium as the consumers believe that that they offer better value for their hard-earned money. This has been possible by the managements relentless thrust on quality. In a country where focus on quality is perceived to be less important than achieving cost leadership and volume sales, the company has been exemplary in its efforts towards maintaining the highest quality standards. The focus on quality is clearly visible from the various policies of the management, such as linking a major component of the worker’s wages with factors such as quality and productivity.

But it has to be kept in mind that Hero Honda has achieved and continue to achieve and provide its customers product and services of such high quality at comparable or at lower cost

36 than its competitors by virtue of its diligent following of Lean Manufacturing & other World Class Manufacturing concepts. Focus on Continual Improvement – The management has been successful in leveraging Honda’s vast product and technology range and the product offerings of the company are a reflection of the ability of the management to exploit the competencies of its JV partner to the fullest. For example, the company was the first to introduce fuel injection for two wheelers in India.

Building Long Term Relationships with Channel Partners – Being at the helm of the Indian two wheeler industry and sustaining the pole position calls for an efficient supply chain. The management has been able to live up to this challenge through its ability to build long term relationship with over a large no. of dealers, suppliers & other channel partners. The focus has been to create a sustainable business model that leads to a win-win proposition for all the members of the value chain. The Munjals have gone much beyond the conventional definition of ancillarisation, making it a point to extend technical and managerial support to these ancillaries. These ancillary units are manned by friends, relatives, ex-employees or close associates of the Munjal family since the Group patriarch, Mr Brijmohan Lall, "… never wanted to march alone."

Domain Knowledge – The management posses in-depth knowledge of the Indian market. The combination of this knowledge and the supplier network along with Honda’s expertise over 4-stroke technology has greatly contributed to the success of the Joint Venture. This also helps the company to think ahead of its competitors and come up with products for satisfying the ever changing consumer needs.

Global Gearing: Managing Alliances - Over the years, Hero Group has strengthened its joint ventures, forged profitable relationships with its partners and allied itself with some of the best players in the market. Technology assimilation through wide sourcing has been and will continue to be an integral part of the progression of the Hero Group.

In a nut shell, the major reasons behind Hero Honda’s success are: •

Visionary Leadership

37 •

Technical Superiority

•

Superior Customer Focus

•

Manufacturing Excellence

•

Marketing & Sales Capability.

The following diagram summarizes the competitive advantages Hero Honda enjoys thus -

Visionary Leadership

Technical Superiority

Manufacturing Excellence

Brand Image Marketing & Sales Capability

5. References i. Exploiting the Virtual Value Chain by J F Rayport, J J Sviokla. ii. Strategy as Stretch & Leverage by Gary Hamel & C. K. Prahlad iii. www.herohonda.com iv. www.herogroup.com v. www.businessweek.com vi. www.indiatoday.com