M&M is not a conglomerate; it’s a federation10 min read . Updated: 29 Sep 2010, 10:39 PM IST
M&M is not a conglomerate; it’s a federation
M&M is not a conglomerate; it’s a federation
Mumbai: On Thursday, automaker Mahindra and Mahindra Ltd(M&M) will enter the competitive motorcycle market in which 7.4 million units were sold in the year to March. Established bike makers such as Hero Honda Motors Ltdand Bajaj Auto Ltdhave been fighting it out for market leadership, but Anand Mahindra, 55, vice-chairman of the M&M group, says he is unfazed by the competition. He cites M&M’s procurement and research and development skills, brand scale and distribution network as key strengths.
The company is also testing a new sports utility vehicle, or SUV, codenamed W201, on Indian roads. Mahindra says the car “will transform the perception that we make great and enduring products but they are not aspirational products."
In an interview, Mahindra answers critics who say M&M is spreading itself too thin by entering too many areas—two- and three-wheelers, tractors, utility vehicles, cars, light commercial vehicles, trucks and even aeroplanes, and offers insights into his leadership style. Edited excerpts:
How do you describe the M&M group?
We have 10 different business sectors, each run by a president. People often ask me, how does it work? Aren’t we trying to do too many things? Do we have the bandwidth? The fact that we are successful until now means that there is some validity in the model. The architecture is one of empowerment and one of creating fulfilment for those leaders who function in this kind of architecture.
M&M has incubated many new businesses. How do you do this, especially when you have your core businesses to grow and protect?
My undergraduate study was a creative one—in visual studies and films. There’s clearly a right brain side to me, which is stronger than the left. Creating new things will always have a very strong appeal to me. I had used the term VC (venture capital) way back in 1994. I had said that’s how Indian families should behave because in the next transition they will have to behave like venture capitalists—not just for providing finance but also in terms of values, management. A common value system across the group allows faster ramp up of businesses. A federal structure can be very a fertile placenta for the new businesses.
How critical is Mahindra Partners’ role in the group?
We have 10 sectors; we are behaving like a private equity (firm). Where is the next generation of growth coming from? Mahindra Partners has become a sort of a gateway. All our new businesses will come through this and it will filter it. When the businesses become mature, they might go through a different way of being reviewed. This allows us to replicate the management style we had in 1994—spend more time, be more intrusive. The start-up businesses need that.
Is M&M spreading itself too thin by getting into too many verticals in the automobile sector?
Rather than getting scale and growing to a huge unwieldy size globally in only one business, our current model allows me to be very nimble. It’s like a fast-moving fish that moves sleekly through the water and yet has a huge tail which helps it cut through the water—rather than a big fish that just sinks to the ground and doesn’t know how to swim.
But there aren’t too many successful business models among M&M’s global peers that have a presence across segments: from two-wheelers to tractors, cars, utility vehicles and trucks.
That never troubles me. Business is all about being different. If I looked and smelt familiar, I would be very worried. I am seeing real big synergies. It will take great form this year, as we have gone back in this stage in our evolution to combining R&D and the back office. Also, given commodities and their cycles and how volatile they have been, the combined purchasing power is going to have tremendous value.
Your entry into the two-wheeler segment has raised eyebrows.
Everyone had said it would be impossible to get into two-wheelers. It was like going against the grain. An entrepreneur is somebody who has a belief, a theory, logic and doesn’t get swayed because of the current ruling climate.
I would know whether the brand would survive or not only in a month’s time because antibodies to a brand come out very quickly. Our theory was that it’s very difficult to go from making two-wheelers to cars because the brand you created in two-wheelers will not travel to cars. But I say it would travel well because when it goes to two-wheelers, the brand would be aspirational. I knew I would get a feel of whether it was partially true or complete hokum within one month. The moment the two-wheeler sales took off, I knew the brand theory wasn’t wrong. The very fact that we sold 51,000 scooters last month is not trivial.
Can you explain the synergies that will benefit two-wheelers?
My shot at building a successful two-wheeler vertical is far higher than some new guys from a garage. I have procurement skill, R&D and brand scale and distribution benefits. If I were somebody outside looking into the Mahindra ecosystem, I would be really concerned whether I’d be able to compete beating the ecosystem.
I am a great believer in (Harvard Business School professor) Michael Porter’s outlook and his approach to competitiveness. He was never in favour of the core competence theory. It’s never one or two things you do, it’s how many things you do in a network—and that combination of the things you do is very difficult to imitate.
What about your two joint ventures with Ford and Renault? They didn’t succeed.
It’s how you look at it. When we entered into a joint venture with Ford in 1993, people said look what’s happened to Premier Automobiles. We were being courted by people who probably thought that they would come in and invest and then take over Mahindra.
When we threw in the towel, we looked at these joint ventures as learning experiences. I can say transparently because that’s how we dealt with it. I had come from a business school, which had taught me that joint ventures have neat transparency and have a half-life. Everybody goes into them for a purpose. Ford needed us to come into —they couldn’t do without us as they wanted local experience and expertise.
When I joined the company we just made one vehicle with a hard top, and all our other vehicles were canvass tops. So it would have been a little absurd for me to sit there and paint the picture of where M&M would be in 2010. You need to get to the next level. I very transparently negotiated that deal with Ford. I insisted that they build the Ford not in a separate plant but in Nashik. I knew that’s where the learnings will be transferred.
The same people who built the (Ford) Escort, the moment Ford moved to Chennai, helped us build the Scorpio. How did Mahindra make the transition from making canvas top vehicles to hard top vehicles of world-class capability? Isn’t the Ford venture central to that?
It was tough for Ford. They had very lean periods but today they are established.
When I negotiated with Louis Schweitzer, chairman of Renault, we actually negotiated the end points of the joint venture. We looked very clearly at what Renault wanted out of it because we have been through this before.
And, even from Renault JV, we owe Renault a great deal. We have picked up skills in terms of quality and production. The very fact that we continue to make the Loganwith their help and there are still imported parts shows that these are not hostile JVs.
We just felt that at that point of time what was needed was not to wipe out the Logan but a different mentality, which would maximize the use of the M&M ecosystem. In other words, bring all our ecosystem to bed because we felt that the only problem to the product was the price positioning.
We have gone to the fifth straight month of sales growth ever since we took over completely. When you are running it yourself, you can make choices of how you price the product over the life of the product.
Both these JVs have been very central to Mahindra’s growth.
After Scorpio, what’s the next big project?
When it is launched, the next vehicle codenamed W201 will transform the perception that we make great and enduring products but they are not aspirational products. I think this vehicle will put that doubt to rest once and for all—both in terms of technology, styling and aspirational qualities...
Do you believe that Mahindra Research Valley is the venture that will transform the group?
Unlike one Scorpio or an aeroplane, a research institution—which arguably is ’s most advanced automotive research facility—will design and develop the entire product range from tractors to SUVs (sports utility vehicles).
It is built within Mahindra World City—an area where engineering skills are at an abundance and best in the country. People can live, work and play in a world-class environment. We are attracting some of the best NRI (non-resident Indian) and expatriate talent for this project, because the real thing people are wary about coming to is lifestyle.
Charles Correahas designed it. There will be about 3,000 people at full staffing. We hope to inaugurate it sometime early next calendar year. W201 has been designed by the team in Chennai.
What are the key challenges for your latest acquisition, South Korea’s Ssangyong Motor Co.?
The challenges are very generic. How do we drive up volumes? The game of automobiles is about volumes. Which are the new markets? How do we make Ssangyong well-known in , the second fastest growing market? Then, the transfer of skills, values and culture and products.
Tell us your plans for the aviation business.
I wouldn’t have originally projected that we would get here so quickly but we have done that through inorganic means. We already have over 200 planes in the air.
Our strategy is two-pronged. One is for aircraft components, because the aircraft sale business itself is volatile. There is a huge takeoff right now in the component business because of the need for offsets (policy that binds overseas firms to manufacture or source parts of a project domestically to reduce trade imbalances) and the need for aircraft companies around the world to lower the cost of their procurement. They are all looking to and for procuring parts.
Hemant (Luthra, president, Systech sector) bought an Australian parts company Aerostaff Australia Pty Ltd and he bought Gippsland Aeronautics Pty. Ltd. We not only have capability of making turboprop aircraft but also bought the capability and the resume for providing very high quality components for both defence and aviation.
Is the integration process of Mahindra Satyam going on smoothly?
Absolutely. First, there was a period of exaggerated expectations. It was followed by a period of fixing the business model. Clearly, there was a lot to fix... There were managers but they weren’t even given a P&L (profit and loss) statements to manage.
When we started the long drawn process of correcting the flaws, there was a phase of “Oh god: Is this going to work out?" A bit of disappointment and weariness set in.
Right now, we are at the middle overs. We need Rahul Dravids... the hard work and not the pyrotechnics. We need to build a strong foundation at Mahindra Satyam.
I choose to be positive about people. I don’t choose to stay awake to worry. When I get up in the morning, I rush to read the papers, switch on the net to see what’s happening in the world because its such an exciting time. I don’t think anyone should be awake except for positive reasons.
You are young, but do you have any succession plan in place?
I have created a panel of eight people—the GMB (group management board)—who could replace me. But they are older than me. But that’s not true succession..
GEB (group executive board), on the other hand, has been expanded to 23 people and all the new people are younger than me. In a sense, what I am doing is true to my conviction. I am building an organization which has thrown up people who can be leaders.
Looking back, do you see withdrawing from JLR (Jaguar Land Rover) a blessing?
As we grow, Ssangyong would be very valuable. Mahindra and Ssangyong brands are very complimentary, they are juxtaposed next to each other very well and they become one continuous stream of products. The premiumness of JLR was very different from ours. So, we would have got brand distraction at that point of time. We also felt that the size and scale and the issues of JLR at that time would have been far too onerous for our company.