Amrit Mohanty
The Organizational and Strategic Issue Faced By Maruti
The Evolution Of Maruti
Maruti Udyog Limited (MUL) was established in Feb 1981 with the objectives of — modernizing and reenergizing the Indian automobile industry, with an aim to produce fuel efficient vehicles for conserving scarce resources and producing native utility cars for the needs of the Indian Consumers. Joint Venture Agreement has been signed with Suzuki motors by which Suzuki possessed 26% of equity and agreed to provide latest Japanese Technology. After five years Suzuki increased its equity up to 50% which converts Maruti into non-government organization.
The Path to Success for Maruti was like: (a) teamwork and recognition (b) strict work discipline © constant efforts to increase the productivity (d) Constant improvements in quality and Focus on reduction in costs (e) customer Inclination (f) long-term objectives and policies to achieve goals (g) respect ethics norm and moral values.
Maruti Offered a different segments of cars, in small segment it includes Maruti 800, Alto, Ritz, A-Star, Swift, Wagon-R, Estillo etc. In sedan segment it includes DZire, SX4 in “C” segment it includes Maruti Eeco in Multi-Purpose vehicle Ertiga in sport utility vehicle Grand Vitara is there. It was the first ever company in India to sell more than million cars. It also brings automobile revolution in India. In 17th September 2007 Maruti Udyog was renamed as Maruti Suzuki India Limited. In February 2012 Company sold its 10th million Vehicles in India Maruti considered to be the market leader in the lower segment of car providing the best value for money and producing the best fuel efficient cars.
As per the analyst Maruti’s competitors have a few successful models, and for that they find it difficult to retain their customers or cross-sell the products. Maruti has a verities of new and old cars which makes it as a hot seller.
Expansion of Maruti has not weakened its traditional Customer Segment. Alto is the market leader in mini car segment, which has a sell around 2.4 lakh units per annum, more than its nearest rival Renault Kwid which sold about 1.09 lakh units in FY17. The Swift was far ahead of Hyundai Grand by about 20,000 units in FY17, with a delivery of 1.66 lakh vehicles.
The sales of Swift Dzire in FY17 at 1.99 lakh units was much bigger than the combined sales of Honda Amaze, Hyundai Xcent and all the other sub-4 meter category sedans in the market. The mid-size sedan Ciaz had also Outstrip Honda City, with sales of 64,448 vehicles, or 6,000 more than that. Now the success of Maruti has made it a barometer to judge the health of the industry. The strong performance makes Maruti Suzuki a virtual benchmark in the passenger-vehicle industry.
In the Financial Year 2015, Maruti grew by 13.4%, also the automobile grew by 4.2% and without Maruti, it would have been a negative year. Likewise In FY16, Maruti grew by 8.5%, simultaneously the industry showed 6 per cent growth, and without Maruti, it would have been 4.2%.
Changing Dimensions and Perspective of Indian Government on Indian Automobile Sector
The Government has taken some steps as well as changes its policy for reviving the automobile sector. The following were some of the policy initiatives taken by government of India that showed the changing dimension and perspective of Indian automobile sector.
Lower Interest Rates
According to a business world report, Over 80 per cent of the vehicles purchased in India were purchased with financing scheme. The main focus of government was to reduce the bank rates which as a turn would reduce the vehicle loan costs, and hence encouraging the customers to purchase vehicles. As a result, it led to improved demand as well as sales for the sector.
Introduction of GST
The GST had come into effect from April 2016. The introduction of the proposed GST would definitely help the auto manufactures to boost their sales.
By the appropriate implementation of the recommendations of the seventh pay commission on salaries of the state and central government employees there would be an enormous increase in automobile sales, especially the in the mini segment.
‘Make in India’ Campaign
The initiative of the Indian government ‘Make in India’ was designed to boost Indian manufacturing industry which has a contribution of 22 per cent to the country’s gross domestic product. This campaign would definitely benefited automobile industry.
The primary focus of the ‘Make in India’ campaign was to focus on infrastructure because infrastructure was a major driver for the growth in auto industry. This campaign is also expected to reinforce public policy making and planning which as a turn, likely to energize the demand in the automobile sector. The second focus of the ‘Make in India’ campaign was on reforms in policies like labor law because it has a major impact. In 2011 Maruti Suzuki was affected by this when workers went on a two week strike. Third goal of the “Make in India” campaign was to focus on ease of doing business. This would definitely assist the automotive companies especially the component suppliers those who are looking to set up their research and development (R&D) Centre.
Core values of Maruti Suzuki setting the right organizational culture:
· Customer Obsession.
· Fast, Flexible & First Mover.
· Innovation & Creativity.
· Networking & Partnership.
· Openness & Learning.
STRATEGIC ISSUES AND STRATEGIC INITIATIVES BY MARUTI
Maruti is one of the main market leaders in the automobile passenger car segment. With an increasing competition from local players and foreign players, in the recent years Maruti Suzuki is facing threats in the premium segment entry level car.
Maruti’s Move Towards Premium Segment
Maruti Suzuki (Maruti), the leading car manufacturer in India launched 10 Nexa showrooms on July 23, 2015 all over India, as exclusive outlets to sell its premium range of cars. NEXA stood for New Exclusive Automotive Experience; which was the philosophy behind Maruti’s new endeavor. These outlets provided a more luxurious buying experience for the customers interested in buying a premium product. NEXA showrooms were different from regular Maruti showrooms and claimed to give more personalized premium experience to its customers. These premium showrooms were featured with the superior decor, ambience, and a more pampered customer service. S-Cross was the first car launched by NEXA P on August 5, 2015, followed by Baleno. In fact Maruti was not so successful in terms of volume for Baleno when it launched through its regular Maruti Showrooms. After it was launched through NEXA on November 26, 2015, they were able to achieve higher volumes. Maruti, was the India’s number one car brand in the economy car segment for over 3 decades.
Previous failure for establishing premium vehicles: Maruti tested waters in the premium segment with Grand Vitara, Baleno, and Kizashi which were sold through the pre-existing Maruti car showrooms but was not successful. The brand was built so powerfully around the themes like “the most affordable car”/ “the common man’s car” that the brand image itself became a hindrance in its upward movement towards the premium segment. The premium brand like Honda entered the mid and small segments which were dominated by Maruti cars but Maruti itself was not able to enter the premium segment. Maruti also applied a strategy to effuse its common man’s car image by launching NEXA which and that had a black and white sophisticated theme in its show rooms. Some of the reasons for this failure are attributed to reasons like Maruti Suzuki being known as affordable, fuel efficient and great value providing car brand. It also has not been positioned itself as a high-end brand, so the people ask — Why should I pay such a high price for a Maruti Car?
Nexa is for a well travelled consumer who is digitally savvy, updated and seeks a world class experience while buying a car. After research, we found that the Maruti’s popular retail channel is not equipped for it and hence a separate channel was needed.
Maruti Suzuki as a brand presence in all across the country: (Network expansion) but Nexa does not have
Since Maruti Suzuki maintained its brand image across pan India, Nexa also needed to have a similar presence. The thought posed several questions for the stakeholders as Nexa wasn’t meant cannibalize Maruti’s existing small car market and it shouldn’t disturb the dealer-brand relationship.
Recruitment and training of manpower was the biggest challenge for Maruti to place the right-fit manpower as per the company’s expectation.
Challenges in front of the company:
1. Initially it is said that only premium cars will be sold at Nexa. Definition of premium being cars priced above 8 lakhs. But most of Maruti’s models have their cheaper variants priced below 8 lakhs while top spec variants crossing 8 lakhs. Should I go to regular showroom for LXI/VDi variant or to Nexa for ZXi/ZDi?
2. Most of the new launches like Baleno and S cross are being routed to Nexa. But these are priced almost at par with other budget cars (Swift, Dzire, Ertiga). Baleno price range starts at 5 lakhs ex-showroom Delhi. So what is premium about it?
3. Wont the dealers who invested in regular Maruti showroom feel cheated that new model share not being sold in their showrooms?
4. Up selling is going to be a challenge. Suppose a customer walks in into regular Maruti showroom asking for Swift. Salesperson feels this guy has budget and interest to buy a Baleno. But now Baleno is being sold in a different showroom in other part of town. If sales person asks the prospect to go to Nexa, there is no guarantee that prospect will go all the way- he might book a car at a competitor showroom enroute. If Baleno was available in same roof, a more profitable sale could have been stuck on the spot.
5. Overhead costs: Assume that it costs 5 lakh rupees per month to run a car showroom (rent, salary, maintenance expense etc). If a regular Maruti showroom is selling say 100 cars per month, then they need to earn Rs 5000 per car to breakeven the operating costs. A premium showroom will have same or higher expense- but if premium showroom sells only 10 cars per month, then they need to earn Rs 50000 per car. As a consumer, would you may much more to a car against the promise of “premium experience? It is a tricky situation for Nexa- they need higher numbers to make profit, but higher number means more crowds and less differentiation between Nexa and regular Maruti showrooms. As a customer are you willing to pay more for a premium showroom experience (a welcome drink, less crowded showroom and an over courteous staff) for an ordinary car?
6. Nexa showrooms are very few in number per city. Would you drive 20kms extra to a Nexa showroom for ‘premium’ experience or prefer to get your work done at a regular Maruti showroom/service centre near your home/office? Even for prospects, it is unnecessary confusion and extra traveling visiting dual showrooms.
7. Nissan has done a smart move by selling Datsun inside Nissan showrooms. Maruti’s premium showroom concept would have worked well if they stick to the rule that only 10 lakh+ cars will be sold via Nexa. But Maruti is diluting Nexa by selling much cheaper cars also in Nexa, thereby reducing gap between Nexa and rest of standard showrooms. In fact the overlapping price range will only add to confusion, rivalry among dealers.
8. If a customer has already bought a car from the premium NEXA showroom, where the customer will go for after sales service. How NEXA will retain those customers by providing the service experience in the existing channel.
Current Organizational Structure: (Functional type)
The organizational structure of Maruti was a functional one with horizontal linkages. The entire activities are divided into different functions like finance, marketing, engineering and sales, spares, production, material, parts inspection, quality assurance, human resource development, information technology, new business and administration. The centralization is very low in Maruti as the decision-making authority is quiet decentralized and disturbed across all levels. The functional structure is fine for the mass production system in Maruti Suzuki but in case of Nexa as a more customer centric brand needs a lot of reformation in the organization structure. There are 29 divisions in Maruti and are headed by one divisional head which is a functional post. Here the divisions are divided into 132 departments also each department is headed by one departmental head which is a functional post. In Maruti the formalization is very high all the methods, procedures, standards are written down formally. All the departments have department procedures which describe the role of work of the department as well as their responsibilities and work flow.
All the strategies made at the functional level and subsequently passed on to divisional and departmental level. There is little scope in departmental level to fine tune the strategy.
Structural elements current structure:
Differentiation: As the Maruti have functional structure and division of labour so there is high degree of specialization. There is high level of differentiation. There is high level of horizontal differentiation and less vertical differentiation.
Centralization: Power is distributed within the hierarchy because there are various persons who play a very crucial role in the organization.
Formalization: The instructions, procedures are written down formally in the organization and on the other hand departments have their own formal procedures of doing work in an organization so that they can achieve their objectives on time.
Complexity: Complexity arises because of structural complexity as there is goal incompatibility between different departments.
Flaws in the current organization structure:
Here the lower level managers take decisions understanding the big picture. While the top level managers have less information on local operations as compare to lower level managers.
In decentralization organization there is lack of co-ordination among the managers. This can be reduced by defining the company policy and communicating throughout the organization.
Lower level managers have objective that are different from the objectives of the entire organization. For example some mangers are interested in increasing the size of departments as compare to profits. This problem can be overcome by defining the performance appraisal which helps the managers in defining their problems.
It may be difficult to tell about innovative ideas in a decentralized organization. Someone in the organization have the great idea which provide benefit to the organization but without a strong central direction the idea cannot be shared with and adopted by others in the organization.
Organizational Culture (Employee verbatim):
PART B
“NEXA’s core competencies should not restrict itself to sell only premium car from the newly built showroom but in addition NEXA should sell customer relationship, customer convenience as value proposition with a strong value chain.”
Employee Training to adhere the new objective of the brand: After a research, it was established that consumers (while buying cars) missed on hospitality. Hence, the concept of Nexa was derived from the hospitality, banking and aviation industries, which knew well about one-on-one interaction with the consumers. “For Nexa, we roped in people from banking, aviation and hotel industries as they knew hospitality nuances. Later, we trained them in selling cars,” shared Sequeira.
With product at the center and hospitality surrounding it, the designing teams were clear that the Nexa representatives will have to partner consumer throughout the lifetime of the car. “Consumer should know his relationship manager and vice versa.
Designing of resources as customer centric: (Competitive advantages)
Valet car parking system.
Hired external agency to hire, train and retain manpower. (Recruitment –Train –Retain concept)
In our research, we found that the to and fro movement of the backend staff clutters the showroom, so we kept them away at Nexa. We designed the dresses of the staff at Nexa according to the ranks. While the theme of the dress was same, but there was a slight difference in the shades. At Nexa, no staff is allowed to be in casual. We had to manage the supply of cloth and design. It was a difficult task.
While technology was at the centre in designing Nexa, the design teams worked towards a paperless outlet. The idea was to provide information around the market and the car on digital platform.
Japanese firm helps NEXA setting the lighting inside the show-room.
Brand Promotion: (Competitive advantages).
The real challenge before Maruti was that people should not confuse Nexa with a new car, which honestly, people did in the beginning. So, in order to avoid that, Hakuhodo India used exterior of the showroom in the teasers. “This is the first time in the Indian scenario when a brand is promoting its retail network via advertising
While other players have established its dominance in the premium and high-end cars market, Maruti aims to re-enter with Nexa. Is it the right time or is Maruti late?
Today people have enough disposable incomes and are ready to dispose money. Five — ten years, Indians were not ready for such an experience. And secondly, earlier people kept cars for a longer duration, today they keep it for a shorter duration, which keeps the brands on the heels to connect with the consumer
Strategic solution: (SWOT analysis)
STRENGTHS
1.Brand Name: Maruti Suzuki has emerged as a strong brand name in recent times.
NEXA, backed with the parent company Maruti Suzuki is recognized as a strong
player in worldwide automotive market.
2. Large Distribution Network: With a strong dealer network of around 5000 plus dealers
all around the country, Maruti Suzuki has made its presence felt in each and every
corner of India. A distinguish place in the existing showroom will help NEXA to expand its network rapidly.
3. Wide Product offerings at different price points: NEXA has launched
various models in various segments and hence has a very good product mix of
offerings as different price points.
4. Encouraging Exports: Maruti Suzuki NEXA is exporting cars to Japan.
5. Economy with technology: Maruti’s cars have always seen as a company
producing cars combining economy with technology.
Weaknesses
1. Lack of in house R & D: Maruti Suzuki/NEXA does not have a comprehensive R & D
department.
2. New model introduction to only cosmetic changes: There is no major design
changes incorporated in Maruti Suzuki products. Only some cosmetic changes
have been made.
3. Dominance mainly at lower level: Maruti Suzuki dominance in Indian market is
only at its lower level segments like Swift in B-Segment and Accent n CSegment. It has to focus on its upper segment models to strengthen its position in
Indian car industry.
OPPORTUNITIES
1.Rise of Indian middle class and small cities: As a phenomenon, growth is seen in
recent times in Indian middle class and the purchasing power of working class
individuals. Also a rise in small cities across the country has given a great
opportunity to Maruti Suzuki for achieving a higher growth rate in coming times.
2. A Booming Economy: Indian economy is growing at a rate of on an average of 7%
every year thereby giving an opportunity of larger sales in each and every
segment.
3. 2nd time buyer era: Customers have started disposing their 1st cars to buy the next level of product.
THREATS
1.Many players fighting for the same cake: There a many major players in the B Segment and since the size of market is not expanding rapidly, Maruti Suzuki has
a major threat in form of tough competition.
2. Entry of new Models: Product offering in the same price brand is giving alternative option to the customer.
Porter’s five forces analysis for Maruti Suzuki
1. The threat of new entrants
As new government rules one foreign country can directly enter into the market which
now creating new threats for Maruti Suzuki. KIA, TESLA are also planning to sell their product in India.
2. The bargaining power of buyers/customers
Buyers in India have a wide variety of choice. There are more than 20 foreign manufacturers
selling in India (including ultra high-end such as Rolls-Royce and Lamborghini). So large numbers of sellers are there with more or less little differentiated car but not at all unique car provider is there. Most important is that switching cost is very low from customer’s side.
3. The threat of substitute products:
Mobility revolution i:e people preferring other mode of travel due to increase in traffic congestion in major cities and stringent rule from Govt to control pollution. Apart from it if one company brings about a new car model with new features then it is immediately substituted by another car making company in the industry and this can be a huge problem to Maruti Suzuki.
4. The amount of bargaining power suppliers have
In automobile industry if supplier of engine or tiers has the possibility and opportunity of
doing Forward integration and entering into car market then it may happen that supplier do
have much bargaining power. If supplier for Maruti has inbuilt switching cost for changing supplier then supplier may have bargaining power.
5.The amount of rivalry among competitors
The rivalry among firms is very intense because of entry of foreign companies in the market.
Every new innovation that one company brings is immediately copied or imitated by the
other companies in the market While Maruti, Hyundai and Tata always have a price competition in the market. The industry is not yet in its shake-out phase and is still struggling to find the up-and-coming stars and possibly topple the leaders.
Core competencies:
A. Strong Customer Base and brand Image
The Maruti Suzuki has a market share of about 55% in the Indian passenger car
segment and is the largest manufacturer of small cars in India.
The company has been voted as first by Indian customers for level of customer
service and customer satisfaction. The company manufactures affordable small
cars which serve the needs of an average Indian customer faithfully and hence
have a strong brand image as the common man’s car in India, which an average
Indian customer identifies with.
Such a strong brand image and huge customer base can sustain the position of
the company as the market leader in the Indian small car segment.
B. Well developed sales and service network throughout India.
The Maruti Suzuki India has a strong dealership network comprising more than
450 cities across India and a huge service network of more 2750 franchises of
service outlets spreading about 1300 cities throughout India.
Such a widely distributed sales and service network can help the company to
relate with its customers across India and also facilitates bargaining power with
suppliers and increase profitability.
C. Very Strong knowledge of Indian market.
Maruti Suzuki is the India’s one of the oldest car manufacturers and also it has
been dealing in huge customer base which positioned the company as
the market leader in Indian small car segment and hence Maruti is having a strong
knowledge base.
D. Competitive Advantage
The firm has competitive advantage from a high market share and well knows
brands.
The high volumes drive economies of scale for the company in manufacturing,
purchasing, distribution and such scale driven activities.
In addition the company has increased the lead by expanding its distribution
networks (more dealers), opening new service centers and by expanding into
allied services such as insurance and used car sales. All these results are in higher
customer loyalty and more repeat business.
Changes in Organization Structure
Rewards
Rewards and compensation should be evaluated on a regular basis so that and which leads to greater linkage to the employee performance and which also leads to increase the goodwill of the company.
People
Frequent interaction with the different departments helps to resolve the problems if any in the organization.
Processes
There should be more focus on quality assurance as they only focus on very stringent other techniques.
Strategy
There strategy should be focused on more on changing needs of the customers and also the changing scenario of the industry.
Structure
Since Maruti is following the functional structure which has various disputes in it hence Maruti has to change its structure according to the requirements so that there are no conflicts in future and also they will able to achieve organizational objectives efficiently and effectively.
One major point is that there is a need of horizontal integration between the various departments at departmental level is required .The hierarchical level is to be reduced because the level of employees are quiet diversified which created a complicated hierarchy.
Product Team Structure
Maruti should adopt a product team structure where specialists from various departments are combined into product development team. The main motive of such suggestion is to focus on specific product. By doing so product development team going to be enforced and as a result quality will be enhanced. Since product team structure is a decentralized one, the specialists are free to take decisions for product development.
BLUE OCEAN STRATEGY — Maruti Nexa used Blue Ocean Strategy to answer the challenges due to Globalization in its Nexa outlets. The three characteristics for a Blue Ocean strategy to be successful were used as follows:-
1. Focus: Here the main focus on those customers who looks for an upgrade of existing Maruti Suzuki cars and then moving to other Global automobile manufacturers. The focus was mainly on their preferences for a better experience, shedding the image of Maruti as a low cost car manufacturer.
2. Divergence: As shown in the Strategy Canvas analysis further in the article, the value curve of Nexa diverged from the existing value curves of automobile majors and from Maruti Suzuki’s existing outlets.
3. Compelling Tagline: “A New Destination, A New Experience” clearly emphasized upon the New Experience is being the selling point of Nexa outlets.
HOW THEY DID IT?
Below analysis says how Four Actions Framework or ELIMINATE-RAISE-REDUCE-CREATE (ERRC) framework was used to change the Strategy Canvas for NEXA showrooms.
As shown in above figure, Nexa was a result of various strategies wherein Maruti changed its Value offerings as compared to Maruti Suzuki outlets and other premium brands. The initiatives taken were as follows:-
1. RAISE
a. Time to purchase
Exclusively trained staffs were recruited in order to give a personalized experience to the customer and their families. The sales executives properly understood the needs of the family and made suggestions on the purchase decision.
b. Interior Design
The interiors of the showrooms had marked improvements with Customer Lounge and special closed areas for financial discussions. The cars on display were lit up with special lighting in order to give a unique stylish feel to the models.
c. Personalized Experience
A sales executive was exclusively taking care of the family and the purchase order and was supposed to take the role of a Relationship Manager, solving all queries in present and future.
2. REDUCE
a. Number of models on Display
With a smaller pipeline of models, the standardized colors were put up with all features embedded in order to give a feel to the customer of the highest variant.
b. Customer to Staff Ratio
At the time when we compared with existing Maruti outlets, the customer-to-staff ratio is very high, there might be a scenario where a single executive is busy with 3 customers. However, this has been significantly lowered in Nexa showrooms in order to facilitate a better personalized experience.
3. ELIMINATE
a. Back-end Staff Movement
Back-end staff movement has been completely removed in order to avoid any disturbances to the showroom experience and the sales executive is the only person who addresses all the queries from one customer.
4. CREATE
a. Valet Parking
A new facilitation done by the Nexa outlets since they feel that the head of the family needs to go to the park the car while the family waits for the person. This does not create a very good first impression. So, Valet parking is a new initiative in order to create a good welcome experience to the customer.
b. Paperless Process
All the sales staffs are equipped with Tablets to display new features and the entire work is oriented towards not using any paper for the transactions. This creates a very advanced outlook for the customer and their families and also gives and image of environment friendly nature of the organization.
CONCLUSION:-: By introducing these initiatives, Company has created a unique space for Nexa outlets and placed it strategically against the existing premium brands. However, as new brands adopt ideas used by Nexa outlets, Maruti will have to come up with new initiatives to enhance the customer experience and maintain its image as the market leader against the challenges brought forward by Globalization.
