CEO SPECIAL........................... RAJIV BAJAJ UNLIKELY DISCIPLE

RAJIV BAJAJ UNLIKELY DISCIPLE  The inside story of how Rajiv Bajaj’s mentoring relationship with guru Jack Trout changed the way Bajaj Auto is run     Abook-reading session is not what you’d expect from a CEO when his company is in the doldrums. Sometime in 2008, when Bajaj Auto was on a sticky wicket, CEO Rajiv Bajaj, then 41, addressed his top generals, a copy of Jack Trout’s Differentiate or Die in his hands. The young Bajaj read out passages for a good 90 minutes, expounding the key messages gleaned, why Bajaj Auto was floundering, and how some of Trout’s theories could come in handy.     Finally, as Bajaj wrapped up the last chapter, Tom Ishikawa, a Japanese executive who had joined Bajaj Auto from Yamaha, said: “Rajiv San, all you have said is ok, but this is just a book.” Bajaj shot back: “Tom San, Yamaha is such a big name. Even then, why isn’t it making money?”     Five years later, Bajaj still recalls the incident. The point being at that time, he had also been grappling with a question: the Japanese (Sony), or Korean (LG) or Taiwanese companies, which had mastered technology, quality, efficiency and productivity, weren’t making money. Why? It was that cold splash of market reality, which ultimately led Bajaj to Jack Trout, the 76-year-old author and management guru.     Since then, a fairly intense guru-shishya relationship between Bajaj and Trout has helped the former find the answers and transformed the way Bajaj runs the Rs 20,973 crore company. Under Trout’s influence, Bajaj Auto has adopted a successful brand-led growth strategy and morphed into a marketing company; j Bajaj no longer sees it as an auto company.     Most products are sharply differentiated and enjoy better profitability. “Our operating profit margins stand at 22%, while that of the market leader stands at 10%, and they have nearly double our volumes,” says Bajaj. “If I had their volumes, I would be at 25-26% profit margins.”     In the five years since Bajaj met Trout, Bajaj Auto’s net profit has grown almost five-fold to Rs 3,044 crore.     Though Bajaj runs a very tight ship with variable costs on a leash and fixed and employee costs a shade under 8 per cent of sales, he credits Trout’s contribution in shaping Bajaj Auto’s brand-led strategy as the reason for its higher profitability. “We didn’t become better in the kitchen, we serve better in the restaurant,” says Bajaj. Adds Rajiv Memani, Country Managing Partner, EY India: “Under Rajiv’s leadership, Bajaj Auto has aligned well strategically. He is very clear, he is chasing profitability, not blind market share.”     Corporate Dossier met up with Bajaj and Trout in Delhi last month where Bajaj and his marketing team spent a few hours sharpening the positioning and communication strategies for the new range of Discover motorcycles that the company is in the process of launching. The guru was visibly pleased with his shishya. “After years of working all over the globe, I can safely say that Rajiv is my best student,” says Trout. “He has read my material so carefully. Sometimes, he quotes from my books, and I ask: Did I say that?” How the penny dropped Three years after Rajiv Bajaj took charge, it was all smooth sailing till the tide turned at Bajaj Auto. Its newest launch XCD, a 125cc bike targeted at the commuter segment, bombed, sales of the Discover dipped and overall volumes plunged. The crisis led Bajaj, a seeker and radical self improver, to Trout’s books.     After weeks of introspection, Bajaj conceded his company didn’t have a coherent strategy. And thus began Bajaj’s deep dive into understanding ‘strategy’. But Bajaj was quickly disillusioned with modern management science as the failure rate of new products still exceeded 90%. He turned to unlikely places – yoga, homeopathy and even philosophers, like Seneca and Confucius – to glean management lessons. “The penny dropped,” says Bajaj, when he was reading Trout’s and Steve Rivkin’s Differentiate or Die. “I learnt almost very late that people don’t actually buy products, they buy brands. If you take the brand out of the equation, you reduce everything to the product level,” says Bajaj. “I didn’t understand the true meaning of the word ‘brand’ till I read his books – and later, met Mr Trout.”     Ever since then, Bajaj has been relentlessly drilling Trout’s insights into the DNA of the company. Take sports bike Pulsar, for instance. Its attributes are clear: it’s big, fast, expensive, powerful, and its strong point is definitely not mileage. So these attributes are made explicitly clear not only to the consumer but also to internal functions, like R&D, marketing, sales etc.     In internal meetings at a large meeting room adjacent to his office, Bajaj asks his top team to imagine that a Pulsar is placed in the centre of the large oval table. All discussion always flows within the boundaries of Pulsar attributes and brand image. Bajaj often rejects perfectly good designs and variant proposals because they aren’t true to the Pulsar attributes. “Great brands have to be true to their brand promise,” says Bajaj.     “Bajaj’s competitive edge has been its consistent focusing on ‘brands’, ‘positioning’ and creating ‘exciting segments’ for two-wheeler enthusiasts,” agrees Sameer Lumba, Managing Director, JM Financial Institutional Securities. Like a true student, Bajaj tests Trout’s teachings in different situations. When flagship brand Pulsar – it has 47% market share in the sports bike category ¬– started drawing competition, Bajaj implemented another idea from Trout and Al Reis’ book, Marketing Warfare. In the marketing tome, the authors advise creating a real and perceptual benefit into the product while defending leadership. They cite the example of Gillette defending market share by adding an extra blade to the razor, and then, another. Bajaj adapted the insight, launching Pulsar 200 NS with three spark plugs for better performance. Competitors have only one or two spark plugs.     It’s a similar story in global markets, which now account for 40% of Bajaj Auto’s sales. In Indonesia, the company was struggling with a market share of only 2% even six years after entering the country. Japanese heavyweights, Honda and Yamaha, and cheap Chinese brands dominate the market.     Bajaj tied-up with Kawasaki, the Japanese manufacturer that focused on the 400cc plus category. It also targeted the value segment by selling the Pulsar as a Kawasaki Bajaj. “In Indonesia, we had to find out, as Mr Trout says, a way to supply the customer with a reason to buy. We positioned ourselves as a motorcycle specialist with a specific technology (triple spark) vis-à-vis the Japanese, who offered a buffet of twowheelers,” says Bajaj. “From our end, we solved the differentiation problem and from their side (Kawasaki), we solved the consumer access problem. So that becomes the strategy, otherwise, it is impossible to crack the market where we are 50 years late.”     But is running a business as simple as merely copying lessons from management books? Sure, Trout and his books did have an influence on Bajaj, but four things set him apart – his ability to synthesize and figure out what works for Bajaj Auto; absolute conviction in driving ideas and actions once he has tested them; a laser-sharp focus on motorcycles. Lastly, credit must go to his father Rahul Bajaj for rotating him through functions. In his nearly 23 years at the company, Bajaj had spent five years each at manufacturing, engineering and marketing before taking the top job in April 2005.     It’s interesting that Bajaj chose to work with Trout because he takes everything with a pinch of salt and even McKinsey reports gather dust in his drawers. So what was it about Trout that appealed to Bajaj? “Mr Trout’s books give principles upon which to reflect. Unfortunately, there is no first law of management, like the first law of thermodynamics….sometimes, there are seven new hats or seven habits or blue ocean or bottom of the pyramid. But you can reflect on the principles he propounds for weeks, months,” says Bajaj.     One of Bajaj’s most controversial decisions has been to exit and stay out of scooters, a category that’s now growing at 20 per cent, and more importantly, was his father Rahul Bajaj’s heritage. “Great brands are built on the foundation of sacrifices,” says Rajiv Bajaj. “Making more scooters doesn’t mean making more money. We are a specialist motorcycle company; we won’t venture out of that easily.” Trout backs Bajaj’s bold call to stay out of scooters. “The scooter business is a bit of a jungle with amazingly tough brands and pricing pressure. I think Rajiv made the right call there,” he says.     And where does Trout fit in Bajaj’s fourwheeler strategy? According to the CEO, it’s another ploy to defend leadership in the three-wheeler category where they are global leaders. His logic: If we can add a second or third spark plug to Pulsar, why can’t we add another wheel to the three-wheeler, thereby increasing comfort, safety and also giving consumers a certain feeling of prestige. “The best three-wheeler is a four-wheeler,” he says. “We want to create a new category with Bajaj RE. Those who create categories, create long-term businesses,” says Bajaj. Trout in choppy waters Given the amount of ground the guru-shishya duo has covered together, surprisingly, there are two sides to the story of how they met. Trout remembers meeting Bajaj after a talk in Mumbai sometime in 2008. Bajaj told him that he wanted him to work with his team. Bajaj, on the other hand, says he had written several emails to Trout before the meeting, without any response. Trout doesn’t remember the emails and says he hadn’t even heard about the company until then.     Five years later, the two enjoy a relationship that’s long crossed the confines of a consultant-CEO commercial engagement. They share a strong personal bond. Bajaj also ensures his team members regularly get to spend enough time with Trout. Earlier, Trout would spend 8-10 days a year with Bajaj and his managers; now it’s down to once every quarter.     Despite the fruitful partnership, the two are yet to crack a vexing problem – managing Bajaj, the family brand. It has been extended into too many products, says Trout. He even met with the Bajaj board and family members advising them to rebrand all other Bajaj businesses. “Gentlemen, this is a mistake, I told them. But they wouldn’t let go,” recalls Trout. “The more successful the motorcycle brand gets, the more Bajaj will become a motorcycle brand. Why do you want a motorcycle brand on your electrical appliances or insurance products or sugar?”     Bajaj too is vocal about his views on this. “If I tell you I want to show you a Bajaj product outside, you wouldn’t know what I would show you — a hair oil, a mixer grinder or a financial product.” But Bajaj enjoys a good challenge. “Einstein said that he derived less satisfaction from E=MC2 than from thinking about the problem,” he says. “Mr Trout’s biggest contribution would be that he has taught us how to think through problems.”     Trout knows Bajaj and his brash ways all too well. He recently presented Bajaj with a signed copy of his book Big Brand, Big Trouble. This is what he wrote as he signed: “Rajiv, make sure to stay out of trouble.” Vinod Mahanta and Moinak Mitra b y Vinod Mahanta and Moinak Mitra   CDET131206