Bajaj Auto Limited | Analysis
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Published: Mon, 15 May 2017
The global economy and the market are growing faster than ever. The current business situation is in a state where they need to reshape their ideas constantly. The change has become so inevitable that without it a company couldn’t survive in this competitive world. Change is the process of taking a company from current position (state) to a desired or expected position (state) and at the same time dealing with the problems that arise in the process, then change is about the management. (Gill, 2003). Change is something that cannot force upon, it is a gradual process of transformation that can affect the entire structure. Change management is an organized, methodical application of the knowledge, tools, and resources of change that provides organizations with a key development to achieve their business strategy. But change management is not a distinct discipline with rigid and clearly defined boundaries (Burnes, 2004).
Organisations may not get their desired outcome if the change management is not effective. With effective management of change we can easily achieve a better turnover, expand the business, reduce cost of sales, maximise profit and even retain the same employee satisfaction. There are two angles in which a change can be viewed – one from the management who are implementing it and another form the employees who undergo it. In the past, the affect of change agents on a business organization was very small but as and when the business transactions started to happen on global basis, the agents that could lead into organizational change also increased. The affect of a change can be felt in global way just like the current financial crunch that is happening around world.
Brief History of Bajaj Auto Limited
The Bajaj Group is one of the top 10 business organisations in India. The Bajaj Group has a wide range of industries such as, Bajaj Auto Ltd, home appliances, lighting, iron and steel, insurance, travel and finance. But the group’s main focus is Bajaj Auto which is ranked as the world’s fourth largest two- and three- wheeler manufacturer and is well-known in over a dozen countries in Europe, Latin America, the US and Asia.
Jamnalal Bajaj founded Bajaj Auto Ltd in the year 1926, which did mainly import and sell two or three wheelers. In the year 1959, the company secured a license from the government of India to manufacture two and three wheelers. From this license, the company started to grow and in the same year, it went in collaboration with Piaggio to manufacture scooters and marketed under the brand name Vespa. By the end of the 10 year agreement with Piaggio, the company started manufacturing its own scooters under the brand name Chetak which pushed the Indian market to top boom and stayed as market leaders in scooter industry for a long period in India.
The scooter made a strong brand image among people especially the middle class families who longed to have their own transport which was economical, durable and easy to maintain which was the key factor for their dominancy in market. The cost of motorcycles was 30% high when compared with scooters, so common people prefer it. Another factor for the market dominancy was the restriction for international brands in the Indian market. Hence the company faced no much competition.
After the effect of globalisation when international organisation started to enter the Indian market, the competition faced by Bajaj was severe. The international companies had invested a lot in Research and developments and had better features and fuel efficiencies and this started to trouble the Baja’s rule over the Indian market. When the price gap between motorcycles and scooters narrowed consumers started to shift to motorcycles because they were more able to travel on a terrain and had much greater ground clearance. When banks started to give loans to own vehicles it was a dream come true for most of the Indians and thus the consumer preference shifted to motorcycles rather than scooters. To conclude the situation created because of the company’s lack of interest in R&D, the turn over market dominancy and overall market value of the company starts declining constantly.
In the early 1990s, the market saw a great recession in the Indian two wheeler sector; overall sales of two-wheelers declined by 15% in 1991 and 8% in 1992. This period also saw a steep rise in fuel prices, which resulted in consumers placing greater emphasis on fuel efficiency when purchasing a new two wheeler. Fuel efficiency of scooters were comparatively less with motorcycles. When banks started financing for buying new vehicles common people shifted to motorcycles which can save a fortune in fuel.
Japanese companies like Honda motor co. ltd (Honda), Suzuki and Yamaha started their operations in India through joint ventures with Indian companies like hero Cycles ltd, TVS, Escorts, etc. All these joint ventures were in the motorcycle segment. The foreign firms came with the latest technology and efficient production systems, which dramatically improved the quality of motorcycles available in the Indian market. Soon the foreign companies started introducing more new models with contemporary technology, styling and greater fuel efficiency.
Then, the entire Indian market witnessed a change that was not at all foreseen by the company. The consumer preference shifted from scooters to motorcycles, which affected the company drastically in a much big way. This was because the difference in the ratio of youngsters and mature adults. In addition the motorcycles became cheaper, more fuel-efficient and was capable to ride with ease in any terrain. The arch rivals, Hero Honda was the company the Bajaj had to compete, but it was in vain as Bajaj had not once thought of modifying their scooters or thought of bringing new motorcycles into market and ultimately Bajaj had to give up its throne of the largest two wheeler company.
The model Bajaj was rolling out of the company was a geared scooter. In the year 2005-06 with the entry of gearless scooters Bajaj lost its dominance over the Indian market to the gearless scooter named Activa from Honda, which was more comfortable for old people as well as women and even men have started to use Activa for their short errands because of its ease of use.
Forces of Change
“Organisational change is triggered by performance falling below expectations or aspiration levels” (Nilakant & Ramnarayan, 2006) or change is initiated by disconfirmation. Forces of change can be two types: the external and the internal.
- Consumer preference
In the 1990s, the Indian two wheeler market witnessed a shift in consumer preferences.
- License Raj
The private investment was extensively regulated by the government through licensing. All the important business decisions like the entry of a firm into an industry, capacity expansion, choice of product, capacity mix and the technology were controlled by the government in an attempt to prevent concentration of economic power. This was referred as License Raj. Also there was a change in emission norms.
- Poor conditions of the road
The conditions were really bad at that time. The consumers need a vehicle with strong reliability and fuel efficient.
- Poor conditions of the transport system
The suppliers had a hard time for supplying materials. Also the growth was partly attributed to the inefficient public transport systems in the country’s towns and cities, which led to a greater demand for personal transport.
- Company’s inability to force the market and shift in the trend patterns
BAL had been slow in reading the demand pattern and how to cater to the changing consumer tastes and preferences.
- Company was not interested in R&D
It was believed that the dramatic shift happened because BAL did not pay sufficient attention to design, research and development and consumer satisfaction.
- No additional features
Motorcycles with better ground clearance, stronger suspensions, and larger wheel bases, performed well on the village roads. Also the fuel economy was an added bonus
- No other brand of scooters
No young and fresh minds in the company’s management
The format and the procedure by which a change has been made in a particular scenario is known as the change model. Change models are tools for driving change forces in an organization. Managing the complex process of change mainly involves managing a set of activities, in which each of the activity is crucial for the overall success of change. The change process involves translating the need for change into a desire for change, and deciding who will manage the change and creating a effective workable relationship.
Change Model applied in Bajaj Auto Ltd
Change Models provided by Kurt Lewin (1951) and V. Nilakant & S. Ramnarayan (2006) is one of the prominent change models followed in the present world. The best model suited for the current scenario is the combination of both of these models by above authors. It can be divided into three phases:
The first phase involves preparing the people for change with the focus on getting them to let go of what is familiar.
The second phase involves taking the steps that actually implement the change.
The last phase involves returning the organization to a stable state again based on the new culture.
The first stage according to Kurt Lewin, in order to implement a change is Unfreezing and most of the cases it will be done by the change agent. In this scenario, Rahul Bajaj, the chairperson of the company is the change agent and this stage involves alerting and communicating the problems, performance gap and need for change to the internal customers/employees. It is basically modifying the current situation in order to achieve the proposed change by proper communication and understanding to the restrainers of change which helps to reduce the resistance and it is the best strategy for change.
The second stage involves the application of the change model provided by V. Nilakant and S. Ramnarayan. It mainly highlights the importance of leadership in the process of change. The task of appreciating change requires the leader to understand the forces of change and prevailing mindset inside the organisation, where as task of mobilising support require leaders to facilitate the idea of change. In the same model, task of executing change involves creating the right structure and processes in an organisation, which is crucial and very important for the vertical and horizontal communication within the organisation, which ensures that employees are highly focused during the change process.
Building Change capability involves empowering employees and making them believe in their own abilities to face new challenges; undertake and complete new tasks. Above all, high emphasises is placed on leadership in the organisation which is the driving force of the above tasks, which also plays a vital role in creating and sustaining change within an organisation. Managed Change, is a data-driven process that guides the project teams, internal change agents and sponsors to follow as they just need to follow guidelines through simple projects or complex initiatives.
The third stage is refreezing stage which stabilizes the organisation at a new state of equilibrium. The main point about this stage is that new behaviour must be, to some degree, congruent with the rest of the behaviour, personality and environment of the learner or it will simply lead to a new round of disconfirmation (Schein, 1996). In organisational terms, refreezing often requires changes to organisational culture, norms, policies and practices. (Cummings and Huse, 1989)
(Source: Bernard Burnes (2004) Managing Change (Fourth Edition) Prentice Hall)
Application of change model in Bajaj Auto Ltd
After dominating the Indian two wheeler market for three decades by the end of 1999 BAL realised the change in consumer preference from scooter to motorcycles with four stroke engines and predictions was that this trend will continue in a higher scale. There was a 41% fall in scooter sale in 2001 which was a real threat for the existence of BAL. Also a new set of emission norms (equivalent to Euro II emission norms) came into effect in 2000 for petrol two stroke engines. As a result, scooters with two-stroke engines fell out of favour.
Applying the change model proposed above, Bajaj Autos was losing its market share due to change in consumer preferences, development of new market segments and availability of better products and scooters manufactured by their competitors. In first step, Chairman of company Rahul Bajaj which is change agent as well identified the need for change as suggested by Kurt Lewin, he unfreeze the current situation by making employees aware of problems, performance gap and need for change. Simultaneously, he empowered and provided new leadership roles to younger generation such as Rajiv Bajaj (Managing Director). In an attempt to regain market share, the company increased its production of motorcycles by 67.6% in 2001 even as the production of geared scooters fell by 44%. By 2001, the company was manufacturing as many motorcycles as geared scoters.
This is the stage where the leadership qualities of a change agent play an important role in success of the change. Change agent in our scenario Rahul Bajaj who is the chair person of the company analysed the present market environment and figure out the importance of change to retain the market share and to bring the company back in the path of success. He figured out the customer demands through surveys and categorised the production in different segments such as executive segment, cruiser segment, premium segment etc. He also introduced youngsters into the company and gave them more authority in order to create innovative ideas which were very important for the competitive market. He also invested a huge amount in R&D and also for design. This completely changed the product portfolio of Bajaj Auto Ltd. Within a short time after these changes new version motorcycles launched in every segment such as ‘Boxer’ and ‘Caliber’ in executive segment, ‘Eliminator’ in cruiser segment and ‘Pulser’ ‘Avenger’ and ‘Discover’ in premium segment which was a huge success in the Indian motorcycles industry. This transformation of Bajaj from scooters to motorcycles created a huge impact on the mind set of the public especially the new generation who were looking for more performance and stylish bikes. The turning point in this change process was the introduction of the product ‘Pulsar’ and ‘ DTSi ‘ technology which help them to capture the two wheeler market under their name and to overcome their rival ‘Hero Honda’.
They also tried to resurrect scooter sales. While sale of geared scooters were falling, the gearless scooter has been growing. The purchasers of gearless scooters were mainly teenagers, women and older people. So they started production of gearless scooters in 2000 under the name ‘Saffire’ which was a great success with its new technology and design from Tokyo R&D a Japanese design firm. They also give great importance to improve the mileage because it was an important specification for choosing a new model in the market.
As per the model suggested the change agent was successful in motivating people, engaging people and developing the capabilities in an economical way rather than going for a complete reconstruction of the organisation. They appreciated the change happened in the organisation, build up the change capabilities, mobilise support and execute the change in the right time and right manner.
This is the stage where the company returns to a stable state based on the new culture. It mainly deals with changes to organisational culture, norms, policies and practices to cope up with the change for a smooth running of the day to day routine of the organisation. When Bajaj’s motorcycles were becoming popular the scooter sales were really down because of the competition in market. They analysed the market deeply and made apt changes. Meetings and sessions were arranged to discuss the unpleasant fact about new competition and flat earnings. So they were forced to phase out several models including the Spirit, the Sunny Spice, the Legend NXT 2 and the Bravo. The Saffire, suffered from several technical problems. Its sales too failed to pick up so they did modifications and was replaced by the Wave in 2005. In 2004, they also upgraded their old model ‘Chetak’ with a new four stroke, 125cc engine, with a promise of greater comfort, superior performance, and better mileage.
In June 2006, the company announced its plans to raise production capacity from 3.5 million units to 5.1 million units a year by 2009, of which the capacity for two-wheelers was to be 4.6 million units. According to their plans, they recently launched a 220cc variant of it popular Pulsar motorcycle. In 2004 Bajaj auto changed their old logo and created a new logo and brand line to renew its new brand identity. This proves that a vision says something that helps clarify the direction in which an organization needs to move (Kotter, 2007). These visions and their accomplishments stabilised the organisation at a new state of equilibrium.
The person who has the handed the management of the change is known as the change agent. “The facilitator who is in-charge of the change in particular section where the change is needed is known as the change agent”. (Mc Calman and Paton 1992). Their task also includes circulate information, identify problems, strategy development, monitor the progress and problems and reporting to the management. To introduce a change the change agent must have a vision and direction and the capability to make people to follow their direction and understand their vision. (Clarke, 1994).
In this case study, the chair person of Bajaj Auto Limited Mr. Rahul Bajaj is the change agent who proved to have a great compassion towards changes in market conditions. He also proved to be an efficient change agent by handling different difficult situation easily. According to the changes in market conditions he changed the brand names to make them more localised and classified the motorcycles in different sections so they can penetrate the market more easily. His adherent Rajiv Bajaj also played a very important role in this change scenario who had a major role in designing and marketing their icon model ‘Pulsar‘ which help the company to acquire a major share in market. ‘Pulsar‘ was selected as Bike of the year for continuous 4 years and he was selected as the Automotive man of the year 2005 by Auto car Professional, bike India and NDTV India respectively. Timely actions taken by change agent like implementation of changes in policies, production and technology and final stage of integration help them to achieve the worlds 4th and India’s 1st largest producer of two and three wheelers.
Analysis and Recommendations:
In this scenario Bajaj Auto Ltd handled this particular situation incredibly but there were certain instances where they could have done even better. The Indian two wheeler market was dominated by scooters till 1990’s and motorcycles came as new favourites. Bajaj was the market leaders till that time later their sales declined because they did not pay attention to design, R & D and customer preference. They also didn’t give much importance to marketing while the competitors were keen in increasing the sales through advertisements. Rahul Bajaj later admitted that they had been slow in reading the demand pattern and failed to anticipate customer behaviour. They also didn’t participate in any social responsibilities and failed to build a trusting relationship with customers, employees and society. But they handled the whole situation sensibly with the proper implementation of change models and the powerful leadership under the change agent Rahul Bajaj.
This scenario clearly shows that change is a continuous process and a proper identification and implementation of a change results in organisational growth. Success of change depends on choosing the perfect change model with fewer resources and can create maximum outcome. An organisation should anticipate the need for change, utilise the resources effectively to attain this mission and must integrate this effort into the planning process. Change agent also has an important role where the desired result depends on how he manages the particular change. To conclude change is an essential aspect in growth and development and the overall success depends on how we tackle the change effectively.
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