The year gone by saw Tata Motors Ltd not prepared to tackle market volatility. But a lot has changed since then and it is a more responsive firm with a rich pipeline of new products, said Guenter Butschek, managing director and chief executive at the auto maker. In an interview, he also said that he had the full confidence of the new chairman, N. Chandrasekaran, and the board. Edited excerpts:
Has the journey so far been tougher than what you anticipated?
The journey has indeed been tougher than expected. When we presented business plan 2016-17 after two to three months of intensive discussions to the board in May (2016), I told them it was ambitious as it was based on certain assumptions of the market. The three key characteristics of speed, simplicity and agility which are critical for the highly competitive automotive industry, which operates in a dynamic and disruptive environment, were desperately missing when I joined Tata Motors. The business plan (was) starting a transformational journey. This is what I was prepared for.
What I was not prepared for was that the market, with its tail wind, will blow straight on to our face. It started in July (2016) with speculation regarding the early implementation of GST (goods and services tax). After a short period of recovery, it was followed by demonetisation. Then we were hit by the unprecedented and unexpected move by the Supreme Court which banned both sale and production of BS-III vehicles from 1 April.
To be honest, the challenge (was) much tougher because we weren’t agile and flexible as an organization to implement changes fast. It’s a different story this year. If something like that happens this year, we will be able to tackle it much better as we are a lot more responsive and have a rich pipeline of new products and can respond to the market faster.
Fiscal 2016-17 showed we were not prepared to counter-balance market volatility. Lots of things have been done, which will yield results in two to three years. We do believe we don’t have the time. The focus will primarily be to strengthen the backbone (commercial vehicle business) of the company.
How would you describe your working relationship with the new chairman?
I have an excellent relationship with him. He became the chairman even before he could have a quick download on the incidents (impacting the firm). So in his first board meeting, he was presented a complete review of the overall strategy, on all the issues. Since the board meeting, the chairman has made himself a part of the team. He got actively involved in all the discussions and provided us lot of inputs from his past experience.
Although both seem different in the first instance, but there are a lot more similarities than what you think of. How do you reinforce your front line team to an incentive scheme to make them a part of the market share development and volume plan? This is something everyone is used to in a consultancy and services business but not in our business. All these inputs have created a team spirit which helped us prepare a turnaround package in the beginning of July. The key to a turnaround is a team approach aligned from the top to the bottom of an organization. Any kind of dispute between the two is detrimental for an organization.
So you are saying you have the confidence of the board of directors and the chairman.
What about the rollback of some of the key decisions including the no-designation policy or thrust on the TaMo sub-brand? Would you merely just term them as course correction?
First on TaMo. It’s not even a course correction as we deliberately decided to re-allocate the resources and capital as part of the key priorities of the turnaround. These do not fall in the category of must-do but nice-to-have. So I would say it’s a re-prioritization and not a course correction. It anyway will come back as we now have a strategy cycle in place.
As far as the OE (organizational effectiveness, which led to redesignation) is concerned, this has nothing to do with the intervention by the chairman or the board. It was a call taken by the management. The OE went live from 1 April. It was touching 14,000 positions. You can imagine, if you are going for such a big change, there will be a lot of noise. But we didn’t want to compromise on a few things—the new structure had to be flat with a lot of accountability.
For instance, in commercial vehicle business, we now have heads for each product lineup including one each for bus, heavy-duty trucks, and intermediary vehicles. This, in the context of the turnaround plan is the ideal combination. In the old structure, it was spread all over the place and there was very little accountability. There was nobody overseeing a programme. Nonetheless, we realized people are not happy as we touched a lot of lives by the sheer magnitude of the exercise.
On the one hand, we have a cascading structure from top to bottom. Unfortunately, at the lower level, some of the principles were violated. We realized if we don’t correct it, we won’t be able to engage everyone in the transformation process. Hence we deliberately picked up a few things and decided to course correct.
But does it show that changing the culture will be the biggest challenge in turning around the company and culture trumps strategy?
Culture drives strategy and strategy partly needs to drive the culture. Principally speaking, I would love to (agree) with you. How do you explain that we, as market leader, cannot read the demand correctly and perceive the change in the regulatory environment like payload applications while the rivals, with much smaller network and product portfolio, could? Not having a relevant product in a segment (37 tonne truck) that is growing fast and then coming in late. This is not an attitude of a market leader.
You have been talking about cost-cutting. Why isn’t the Nano part of the cost-cutting exercise? Is it making money?
Let’s not get lost in the Nano discussion. The fact that it’s not making money is not a hidden secret any more. The wholesale statistics confirm it’s consistently losing volumes. But we don’t take such decisions out of context. It was part of the PV strategy execution but didn’t get implemented for all kinds of reasons. Let’s not talk about the reasons. It needs to be back on the agenda for all relevant reasons. We also need to ask ourselves what is going to happen after the changes in the regulatory environment in 2018. We also need to see what the market segment is going to be like in the future.
Is an electric vehicle the answer to Nano?
I am not saying that electric vehicle will be an answer to Nano’s future but we need to ask the question on electric vehicles as far as this segment is concerned. Small car market is a very tricky one and the most competitive one in the world. These cars are going to see a change in content because of the changes in the regulatory environment but at the same time it has to be cost competitive. If you want to be successful in this marketplace, the only way is economies of scale. You need to have a platform that is designed to deliver the attribute of the product. At the same time the platform should have the potential to be leveraged multiple times. There are not many players in the market that have a platform. The rules of the game might change if India can offer an affordable electric mobility solution. Then it has to be re-evaluated.
It’s still a work in progress. The way the discussion around electric mobility has grown in the recent past, we will close the discussion and reach the execution level. In the weeks to come you will hear some announcement by us in the electric vehicles space.
Tata Motors has huge underutilized capacities. Any plans to rationalize it?
Improving utilization of the installed capacity is part one of the (transformation). An automotive plant requires at least 65% capacity utilization to be somewhat on the positive side. Our capacities have been low. For optimal capacity utilization you make them flexible to variants, increase production or do away with excess capacity. That is where we have a problem. Some of these footprints are inherited. We have the brownfield and we need to transition it to greenfield. The greenfield we envisage is largely connected with the future product lineup. The new models that will come from the all new advance platform in fiscal 2019 will help us in leveraging footprint. Overall, we have a capacity to make 550,000 units at our plants in Pune and Sanand. But it will take us two years to reach a decent utilization level. What is a burden today will turn into an opportunity if I can maximize the capacity to a large extent.
How important is an alliance for the passenger vehicles business? If you could explain this in the context of your partnership with Skoda Auto, which ended even before taking off.
The AMP is going to give us ability for economies of scale. But can we achieve the economies of scale without a partner? No. The whole idea behind the strategic partner was to achieve economies of scale. We would still be on a lookout for a partner who can help us meet the desired objective. There’s nothing at the doorstep now.