Monday, October 24, 2011

Insights from Maruti-Suzuki Saga : Japanese Management as Indian Ecosystem

When a pioneering institution founded on seemingly impeccable foundations encounters periodic upheavals, the causes could be systemic and often beyond the obvious. The periodic workers' unrest at Maruti Suzuki India Limited (Maruti-Suzuki), India's premiere automobile company draws attention to this. Maruti Suzuki India Limited (initially Maruti Udyog Limited, established in 1981) became a 50:50 Joint Venture (JV) between the Government of India (GoI) and Suzuki Motor Corporation of Japan (Suzuki) in 1983. Establishing a state-of-the-world automobile plant in 1983-84 with Suzuki technology, long before India's economic liberalization of 1992, Maruti-Suzuki had a phenomenal impact on India's industrialization and economic development. It revolutionized India's primitive automobile industry, led the influx of state-of-the-art Japanese automotive and component technologies through scores of follow-on ventures, enabled the Indian industry adopt the famed Japanese management concepts and demonstrated that with aligned vision and goals, public-private partnerships and 50:50 joint ventures can succeed. With the sale of the GoI stake to Suzuki and the public offering, Maruti-Suzuki became a subsidiary of Suzuki, Japan by 2007.

Despite the presence of virtually every international automotive company in India, and despite Suzuki having bought up the GoI share, and the attendant structural changes, Maruti-Suzuki continued to be the market leader in the Indian passenger car market, especially the small car segment. In 2009-10, the company achieved a peak sale of over one million vehicles and a peak turnover of USD 8.4 billion. Against this virtuous performance, the series of strikes affecting the production and climate at Maruti-Suzuki, some dating back to 2000, is indeed distressing. While the current strife is variously attributed to trade union matters, public-private partnership issues, work culture and management methods, and will be resolved sooner than later hopefully, the loss of sheen in the original jewel of India's manufacturing crown has some lessons that are relevant to sustain India's growth as a global manufacturing hub.

Troubling hypothesis

In the words of Mr R C Bhargava, Chairman of Maruti-Suzuki (Interview inThe Hindu Business Line, October 23, 2011), since June 2011 when the dispute started, the Company has lost USD 350 Million. He also said, "Unfortunately, at Manesar, the Gurgaon plant's harmonious work culture has not taken roots. Partly because it's a young facility, the workforce is younger and political influence is much stronger. Also, in 1983-84, when the Gurgaon plant was set up, Maruti was a low-key company, still outside the radar of politicians. But when the Manesar plant came up, it was a part of a very successful industrial establishment. Trade unions like to work in areas where workers are prosperous. How come they are not as active among the unorganised sector? The Gurgaon-Manesar belt is known for industrial unrest, particularly in automobiles, as it is one of the most prosperous sectors".

The above observations of the Chairman of Maruti-Suzuki, who had been with the Company as its Managing Director since 1981 and steered its affairs, including transition from a JV to a Japanese entity from 1983, are troubling. The hypothesis of higher prosperity and greater work force youthfulness leading to greater unionism and higher unrest is both enigmatic and disturbing. The essence of superior management, and everyone agrees that the Japanese Management is top class, is that it should result in greater prosperity for the company and its stakeholders. Clearly, it is regressive to accept a situation where prosperity breeds unrest. We need to understand the efficacy of management system in a national perspective. As India seeks to become a global economic superpower, India needs more than technology and management, probably an entire national ecosystem to achieve its potential and aspiration. The following narration in this blog post is independent of Maruti-Suzuki and does not purport to be of any judgment on the company. Rather it postulates certain essential ingredients of a national strategy to achieve true integration of Japanese Management as a national ecosystem.

Japan, a phenomenon

So much has been written about Japanese management that there is hardly any topic or facet that remains to be identified. A few essentials are, however, spoken about more than the others. These are workplace efficiency (5 S), visual management (kanban), inventory minimization (just-in-time, lean management (Toyota Production System) and continuous improvement (kaizen). The management practices are sharpened by an educational and research system that enables conceptual analysis, scientific advancements and technological inventions. These are well supported by a national work ethic of sacrifice, discipline, fortitude, and orderliness which condition the Japanese to place the society's interest before self. Clearly Japanese management is not merely a set of practices but a total national eco system. This has been tellingly demonstrated in the manner in which the nation responded to the Fukushima nuclear tragedy.

As India moves to become a global manufacturing hub, the country has to reinvent itself completely to inject a degree of sustainability in the global competitiveness. India's intelligentsia, politicians and bureaucrats must recognize that sustainable excellence cannot be achieved in anyone sector in isolation of similar excellence in other sectors. Any outsourcing that occurs to India only on cost arbitrage is unlikely to be sustainable (when a strategic time horizon of two decades or more is considered) unless it is reinforced by value differentiation. If cost competitiveness itself is affected by industrial strife or by hurdles to productivity prognosis could be suspect. That said, it would be insufficient even if R&D outsourcing gets added to manufacturing outsourcing, unless massive systemic upgrades take place in social, educational and economic infrastructure. It would be incorrect, for the same reason, to assume that economic liberalization can by itself be a sustainable engine of transformation.

People at the core

Amongst all countries of the world, India would have the largest proportion of people aged 35 years and below over several decades going forward. This generation, unlike the Japanese society, has two extremes to look at: one, a hugely transformed consumerist affluent HNI (high net worth individual) model and the other, an utterly unchanged impoverished BPL (below the poverty line) model. The largest sections of India's youth will be positioned in between the two models, in quest of an appropriate model to avoid the poverty vortex and attain the affluence peak. While industrial and economic development could provide quick fix, as already demonstrated in China and to some extent in India, sustainable and equitable prosperity requires a distinctive model designed for Indian demographics. The appropriate model would have culture and competency serving as the twin foundations, and aspiration and achievement constituting the twin pillars of socio-economic transformation.

Each of the four factors comprises in turn several impactful dimensions. A positive social culture emerges from equality, equity, integrity and empathy. A positive competency set comprises knowledge, application, improvement and innovation. Aspiration is more than a dream; it has awareness, competitiveness, mission and passion. Achievement has, in addition to result, reward, recognition, and growth. An intellectual and egalitarian society with a strong work ethic, more often than not, has all the above elements. The Japanese society comes closest to the above model, which probably explains why Japanese management has become so successful in that particular society. While Individual enterprises that embraced Japanese technology and management have been shining examples of individual success with some collective positive impact on the local industry and economy, in countries as different as India and America, they have not been nationally transformative. That is because the people factor still needed to be addressed in totality.

Education and experience

Japanese management has arisen out of the traumatic experiences of a war ravaged nation seeking survival, reconstruction and competitiveness. As the aftermath of World War II posed stark pressures the Japanese society complemented its work ethic with innovative edge to become globally competitive in just two decades. This suggests that people missions forced by experience often succeed in the face of adversity. Sustainability, however, accrues only through right education and research. During the very same period, Japan overhauled all of its educational and research systems to focus on science and technology, and research and innovation. As a result, a competitive and profitable industry got the right base of human resources to invent new products and efficient processes to place Japan in the top spot. Decades of economic stagnation may have raised questions about Japanese economy but the continuance of Japanese competitiveness despite the very same economic adversities reflects the sustainability of its ecosystem.

India needs teachings of both experience and education to ensure sustainable global competitiveness. Experience teaches that outsourcing services based on insourcing of factor inputs is not a hugely sustainable paradigm. For example, India is far more competitive in trucks where it has achieved high indigenization than in cars where it has high import dependence. Wherever people advantage is supplemented by domestic equipment and material supplies and indigenous process technologies, India could achieve the highest levels of competitiveness globally; bulk drugs and formulations are examples. The implication is clear; India needs a revitalization of its capital goods, raw materials and component industries to achieve sustainable competitiveness. Similarly, the advanced Japanese, Korean, American and European educational teaching and research systems teach us that cutting edge research is the basis of new start-up technologies. While the Indian Institutes of Technology (IITs) are famed globally, it is the student stock than the intellectual property base that has received global recognition. IITs have had centers of excellence in certain disciplines such as microwave engineering, ocean engineering, biotechnology, mainframe computing, artificial engineering, and more recently, nanotechnology. The emergence of new sciences and technologies is tied to exploitation of such infrastructure.

Creating a new ecosystem

Creating a new ecosystem that achieves an optimal combination of culture, competency, aspiration and achievement is not the sole responsibility of the Indian educational system; nor is it within its means. It is a combined responsibility of all the institutions, educational, industrial and governmental institutions and the social, economic and political systems. At one level, the task would appear too massive to even think of attempting it. On the other hand, the mammoth task can be broken up into several manageable sub-tasks such as driving an Indian cultural renaissance through the educational system, enhancing the institutes of higher learning for cutting edge research, campaigning socio-politically for high national achievements and providing multiple avenues for recognizing performance.

A novel way to address this fundamental and overarching requirement could be through institutionalization of power and responsibility to drive such a transformation. Expert agencies could be created for drawing up of curriculums of Indian culture with all the wisdom of centuries updated with requisite modernity. Educational institutions could modernize the syllabi each year to incorporate modern developments on a real time basis. Industries can aim at developing new capabilities in import substitution. Individuals can be encouraged by family elders and institutional leaders to inculcate positive aspirations from the beginning. And finally, growth and development need to be expressed in more tangible metrics in shorter time frames to motivate the society that India can transform itself.

From management to ecosystem

If Maruti-Suzuki and other new car and component companies, with their Japanese technologies and management practices, could transform a dilapidated automotive industrial structure of India into a globally scaled and technologically vibrant industry, there is no reason why a larger adoption of a total national ecosystem concept cannot have a more impactful and more expansive transformation on the Indian industry and economy. Fundamental changes have to be engineered at the social and educational levels in parallel to industrial and economic initiatives to achieve a total transformation towards a Japanese style ecosystem with Indian ethos.

Posted by Dr CB Rao on October 24, 2011

No comments: