Transformation Series #2

Continuing the series that started last week, here’s a case study of a two-wheeler company that was burning cash and struggling to stay afloat.

This company had successfully monetized imported technology and products for over two decades. However, it began to experience significant financial losses due to several critical issues:

Challenges Faced:

1. Lack of Product Upgrades:
   The company failed to update its product design, look, and performance for over 20 years, leaving it outdated in a competitive market.
2. Cost-Cutting Missteps:
   In an attempt to reduce costs, the company embarked on a “value engineering” initiative. Unfortunately, this often compromises product quality and integrity.
3. Push Sales Strategy:
   To boost sales, the company forced products onto dealers without considering secondary sales, resulting in inventory pile-ups and high receivables.
4. Fear-Driven Culture:
   Within the organization, decision-making suffered as employees feared failure and the potential loss of their jobs.

Positives of the Company:

Despite its struggles, the company had several strengths:

1. Modern Equipment: The company had invested in fairly advanced machinery.
2. Committed Workforce: A well-organized and dedicated labor force.
3. Managerial Talent: A pool of capable and experienced managers.
4. Strong Brand Association: The company enjoyed a loyal customer base and strong brand recall.

Turnaround Strategy:

To address its challenges, the company implemented a turnaround strategy based on the following pillars:

1. Empowering Managers:
   The team was given the freedom to make decisions, with a safety net to ensure honest mistakes would not be penalized. This encouraged proactive decision-making and innovation.
2. Worker Engagement:
   Workmen were involved in suggesting ideas to improve productivity. Their deep understanding of the business processes made their contributions invaluable.
3. Scientific Cost Management:
   The company replaced arbitrary cost-cutting measures with structured and scientific cost management practices.
4. Dealer Support:
   Dealers were no longer pressured with month-end inventory dumping. Instead, the company initiated Below-The-Line (BTL) activities to help dealers clear existing stock. Products were sent based on dealer pull and inventory thresholds.
5. Dealer Collaboration in Product Design:
   Dealers were involved in the product design process, with their feedback incorporated into improvements.
6. Workforce Optimization:
   A Voluntary Retirement Scheme (VRS) was introduced, reducing the workforce by 20% to manage costs. This was accompanied by an outplacement program to support transitioning employees.

The Outcome:

The turnaround strategy, with full participation from the team and dealers, transformed the company from burning ₹10 million a month to achieving cash break-even in less than a year.

This case highlights the power of collaboration, decisive leadership, and a back-to-basics approach in driving transformation.

Reach out to shekar@crescentiastrategists.com to learn more about this journey.