CEO SPECIAL..RAJIV BAJAJ

Why does Rajiv Bajaj love to Zig when the world Zags?

 Inside the mind of India Inc's most unconventional CEO

    The mood was grim in the second floor meeting room of Bajaj Auto office at Akurdi, near Pune. It was early 2008, and Rajiv Bajaj and his A-team, consisting of Pradeep Shrivastava, Joseph Ibrahim, Ravi Kumar, Kevin D'Sa, among others, were huddled around the centre table listening intently to an internal presentation. The theme: how to compete with Hero Honda. The prognosis looked weak. The question before the motorcycle major was: what parameters could Bajaj Auto beat its formidable Japanese competitor on -- technology, quality, economies of scale, distribution? The answers were disheartening, to say the least. The Hero Honda JV seemed to be ahead on every count.
    Clearly, Bajaj Auto needed some answers, and quickly. "That day we were actually discussing the end of Bajaj," says managing director Rajiv Bajaj. "Sometimes it happens that you are almost at the summit. It is within reach and everybody thinks it will happen. And then the tide turns and you can't do anything right. So you really have to sit and introspect. We were in big trouble."
    The company had worked hard on developing a new product portfolio, created a robust R&D setup from scratch, re-configured its supply chain, and reenergised its legacy distribution network. All that had come to naught. By the end of the meeting one possible approach offered hope. It was one that European auto brands had used successfully against the Japanese onslaught -- a brand-led growth strategy. It was a big bet for the Rajiv, who had taken over the reins of the company from father Rahul Bajaj just three years back.
    So did it work? The numbers sure tell the story. Four years ago, Bajaj Auto had sold 2.45 million vehicles to clock Rs 10,728 crore in topline and Rs 748.9 crore in profits. This year, it closed with sales of 4.34 million vehicles, a topline of Rs 20,139 crores (nearly a third from exports), Rs 3,004 crore in after-tax profits, and margins at an industry-leading 20.2%. The sweetest victory of all: the Bajaj Discover toppled Hero's Splendor to become the world's largest selling motorcycle brand this September.
BEHIND THE NUMBERS
    And how did Bajaj put his unconventional gameplan to action? Bajaj was running out of choices, disillusioned as he was with management science. He set about searching for answers in what's now his signature style — seeking inspiration from other sciences like Homeopathy and Yoga, success stories like those of Toyota and Volkswagen and even McDonalds, and applying it to his industry.
    Best practices are known to be extremely risky and tough to execute. Replicating other companies' processes carries the danger of unintended consequences that could create havoc with business models. Such a bold bet needed a leader with a risky appetite, courage of conviction to carry it through and also a very deep working knowledge of all parts of the company, all qualities that young chief executive possessed. For some Rajiv would have been still wet behind the ears with just 3 years corner room experience.
    But Rajiv's father Rahul Bajaj had made sure he spent his formative years toiling in R&D, Manufacturing, Marketing and Sales. "Even today he can sit with any section head and discuss each process threadbare," says S Ravikumar, senior vice president (business development & assurance) at Bajaj Auto.
    But to draw up a survival sutra for his company it was important to first understand failure. Two statistics particularly bothered him. One was from Al Ries' book, The Origin of Brands, which stated that the failure rate of new products and services was 90%. It irked him that managers from top b-schools considered it their birthright to be wrong 90% of the time. The second, from a Harvard Business Review article, pegged the failure rate of production services at 75%, with just 3% of products managing more than $50 million in sales.
    It was time to look in non-traditional areas. Bajaj found his clues in Homoeopathy, a science he'd been studying since 2003. Organisations, like the human body, he says, have a material aspect, which is the physical body (money, plant, machines in case of an organisation), and an immaterial aspect, which is the immune system (strategy in case of an organisation) that resides within the former. Vitality can be achieved when there is harmony between both. "My contention and my learning from homeopathy was simply this: we must accept something called a strategy that should exist within an organisation. And if the strategy is strong, the organisation will be strong even in the worst of times," he says.
    Based on the principles of homeopathy that he learned from Dr Sunil Anand and Dr Rajan Sankaran, Bajaj began the resurrection of his brand. It initially involved conducting sessions titled 'brand pills' (based on white pills used in homeopathy treatment) on how to build a brand.
    Even his brand strategy is based on a principle of homeopathic healing called the "Three-legged Stool" which is borrowed from Dr James Tyler Kent. It says that a person's treatment should be based on at least three key symptoms, not just one. In the branding context, Rajiv Bajaj's interpretation was that every
    single brand in the Bajaj portfolio should stand on three legs to be stable: there should be continuity in appearance, certain aspects of performance must be met, and every brand should stick to its price band. Translated into action all of this means that if, say, a new Pulsar prototype is not meeting performance criteria or its 20% EBIDTA target, it's a no go. "Whenever we think of developing a new version, we imagine the brand in the centre of a room and then think in terms of its three criteria. It simplifies the whole process. Otherwise there would be as many versions of the next Discover as many people in the room," he says.
RAJIV RULES
Draw Inspiration from different sciences: Adopt carefully Develop strong credible brands based strategy Align entire organization behind the brand based strategy Create strong need-based, affordable products in each of the markets Specialise, Specialise, Specialise Focus on a narrow brand but aim global Maintain cost discipline Forge effective alliances to combat bigger competitors Pushing Boundaries
The next big insight came from answering the question -- what do the 10% who succeed have, that the 90% who fail don't? Here again, Bajaj's big bet was based on a homeopathy principle of 'individualisation' which effectively says, 'don't try to generalise but try to separate out'. "Individualisation is the first principle of change, and can also be interpreted as specialisation," he says. "I always say, 'strategy is specialisation'." And that kind of sharp brand focus and specialization has helped. "Bajaj has been consistently focusing on "brands", "positioning" and creating "exciting segments" for two wheeler enthusiasts. Unlike competition, these priorities have helped Bajaj clearly capitalize on Platina/Discover/Pulsar within Entry/Executive/Premium segments," says Sameer Lumba, managing director, JM Financial Institutional Securities.
    And specialisation, by definition, demands focus and sacrifice. Hence the beloved scooter, the cheaper 100 cc motorcycle models, the mopeds plan, all got the axe. "Al Ries says if it was left to us, all our ancestors would still be alive. It's the same with human nature. We don't want our brands to die. But when the market evolves, the old brands must die and new ones must grow," he says. That's a fundamental yet oftignored insight, says Shashank Tripathi, partner, leader strategy practice at PwC India: "Good businesses are built on saying no."
    Focus meant making another choice: all products in one market or one product for all markets. "We noticed that the greatest brands in the world play in a narrow band but a wide market," says Bajaj. The solution was to have three or four motorcycle brands and dominate the global markets with those. So Africa got the Boxer, developed markets like the US, Europe, Japan and Australia had KTM, and South Asian markets had Discover (commuter segment) and Pulsar (sports). "After Bajaj Auto decided to be a global player, competing with motorcycles was a much better play because of the sheer volume," says Rakesh Batra, partner and national leader, automotive sector, Ernst & Young India.
    With a clearer vision, the challenge now was to drill down this brand-centric thinking into the company's operations. That meant changing the back-end to mirror that of a marketing company where the fixed costs were low (around 6% of sales), unlike that of a technology driven player like Honda with much higher fixed costs. So when Bajaj Auto put up a plant in Pantnagar it took up only 60 acres and an investment of Rs 150 crore, even as some of its suppliers occupied biggersized plants. "It was good enough for one million motorcycles with revenue of Rs 3,000 crores. The plant, land, and machinery were paid off within 6 months," says Bajaj.
    Moreover, cost discipline is now ingrained in the new system thanks to Bajaj's obsession with lean manufacturing. "He is able to see the flab right through the development lifecycle because he's been so hands-on. He'll make sure that we take in full value in every single rupee that goes in," says Ravikumar. Over the years, Bajaj Auto had perfected a model based on outsourcing a large chunk of its components to vendors and, to top it all, the company works on a negative working capital cycle.
    Changing status quo always cause friction. All of Bajaj's bold moves haven't gone down too well with the family or with other stakeholders. To begin with, father Rahul Bajaj wasn't convinced about quitting the scooter category. And when Rajiv Bajaj wanted to wind down the production in the Akurdi plant, it meant slashing thousands of jobs. In August 2007, Bajaj took a much publicised decision to tell older workers to stay at home, promising them salary every month till their retirement. In a tough year, the company paid Rs 182 crore per year as VRS. This was the preparation for the big changes he was to unleash later. With new technologies coming in, this was inevitable, explains Bajaj: "When strategy changes, everything changes." What didn't change though was the core team he'd put together for his vision of brandled growth.
    Even when he acquired a stake in KTM, the second largest European motorcycle brand in which Bajaj now has a 47% stake, his logic was that it wasn't only for technology, or a brand name, but cost synergies as well. This year one-third of all KTMs sold worldwide will be out of the Chakan plant. "Whether it is 125,130, 200, right up to 400 cc, the engine platform is the same for the Pulsar and KTM. So the new Pulsar 200 NS and KTM come out of the same kitchen," he says. It was an inspiration drawn from Toyota (with its 3 tiered structure of Scion, Toyota, Lexus) and Volkswagen (Skoda, BMW, and Audi) who make all models from same factory to achieve economies of scale.
    There was quite a bit of shrewd thinking behind Bajaj's unconventional bets. While looking to counter Japanese brands like Honda and Yamaha in emerging markets he knew he had to partner with someone who was the opposite of brand Bajaj. This he found in Kawasaki, a brand known for bigger 400 cc bikes. "I read an interview of Mr Narayana Murthy where he said the founders of Infosys are individually exclusive but mutually exhaustive. That's how our relationship with Kawasaki is," he says. While the tie up with KTM is more back-end in nature, the tie up with Kawasaki is more frontended, enabling Bajaj to expand to more export markets and use Kawasaki's distribution reach worldwide (particularly in markets where Japanese players dominate). "There is enough room for Bajaj in these markets over the next decade and even a small market share will ensure fairly good contribution to its growth," says Lumba of JM securities.
CHANGING THE RULES
    Re-inventing strategy isn't the only ace up Bajaj's sleeve. Take the RE60 for example. The two-wheeler giant happens to be the world's largest manufacturer of three-wheelers, a high margin business that's witnessing competition from Piaggio, M&M and TVS, among others. The RE60 is an attempt to defend its leadership in that category by offering a new product - the four-wheeler. It's certainly not a car, Bajaj says: "According to us, the best three-wheeler is a four-wheeler. But a four wheeler is not (necessarily) a car," he says. The category is not recognised by Indian transport authorities and Bajaj, with his pitch of selling a vehicle that'll have "half the pollution, twice the mileage" is pushing for a national quadricycle policy. And yes, the RE60 too ties in with his 'less is more' philosophy.
    Surprisingly for a man who spun his company I80 degrees, Bajaj says he abhors the word 'change' as it means discontinuity, and discontinuity creates fear. He'd rather go with the Darwinian approach of evolution: "I tell my people the world will evolve, let us adapt." Here's another one from Rajiv Bajaj's strategy book: "We don't manage the brand; the brands own us," he says. "Because when we try and manage our brands, it always comes from the ego."
    Bajaj's propensity to bet against the market was evident very early on. Way back in 2001, when the company proposed to launch Pulsar--its new sports bike--he remembers the India head of McKinsey asking him, "Why are you always dancing around the customer?" The consultants were of the opinion that it would be far more prudent to aim for the 100 cc motorcycles segment, which was the dominant category at that time, and not risk it big with a Rs 50,000 sports bike that Pulsar was positioned as. Bajaj would have none of it, and his idea prevailed. Over the years, his instincts were proven right--the Pulsar went on to create and rule the premium motorcycle segment in India with 40% share. But now the motorcycle sales are under pressure, and the share of scooters continues to rise at the expense of motorcycles, while 125 CC bike sales are rising, it's a segment in which Bajaj is weak. Is it time for another bet Rajiv?
    THE KNOWLEDGE JUNKIE
    Rajiv Bajaj soaks knowledge like a sponge from different sources: books, competitors, different sciences, and experts. Few know he chased Jack Trout for close to two years, writing faithfully till the time he managed to coax the marketing expert to visit Pune in 2009, and since then Trout has been a regular visitor, even calling Rajiv his best student ever. But then he's not the only one who Rajiv's learns from. Yoga Expert BKS Iyengar, Homeopaths Dr Rajan Sankaran and Dr Sunil Anand also have influenced the Bajaj's scions management style majorly. And its long term relationships that Bajaj has forged with all his teachers, among them, Dr John Wallace, the ex- British Leyland executive, a well known engineering expert who worked with Bajajs' as a consultant for 5 years till 2000. Then there is Professor Sueo Yamaguchi, the Total Productive Maintainence Guru who has acted as a guided for Rajiv while dealing with manufacturing processes. Another big influence was a senior Bajaj executive RA Jain who used to be the chief of materials in the auto major and who coaxed Bajaj to start a R&D department from scratch and not rely on Japanese for technology.

Vinod Mahanta CDET121019