Innovation Strategy for Tata Nano

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11th Jan 2018 Management Reference this

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1. INTRODUCTION:

Seldom do we see cars that rewrite the history books even before they are seen running around on the roads. And hardly ever do we see cars that vow to put the nation on four wheels. The Tata Nano is one such car that has been in the news for quite a few years, for reasons good and evil. Nano is a car which has breathed into life due to one man. Give credit to Mr. Ratan Tata for his determination to build a low cost family car that has come true, finally. Took long it did, but the Nano came in a beautiful form. Touted as world’s cheapest car by a far cry, Nano has been the talk of the town around the globe. Head honchos of big organizations have been pouring in by numbers to have a look at this engineering master piece. Nano as a part of a “new breed of 21st-century cars” that embody “a contrarian philosophy of smaller, lighter, cheaper” and portend a new era in inexpensive personal transportation and potentially, “global gridlock”. The Wall Street Journal confirms a global trend toward small cars, led by the Nano. The prefix “Nano” derives from the Greek root ‘Nano’s’, meaning dwarf as with nanometer. “Nano” also means “small” in Gujarati, the native language of the Tata family, founders of the Tata Group.

The project to create a 1 lakh rupees (3000SGD) car began in 2003, under the Chairman of Tata Motors, Ratan Tata. The strategy behind the project was the awareness of the number of Indian families who had two wheeled transport, but couldn’t afford a four wheel car, and was based on the company’s success in producing the low cost 4 wheeled Ace truck in May 2005.

To discuss the innovation strategy for Tata Nano, we first discuss the constraints as per which the company had to operate.

In pursuit of excellence and to keep up to the initial promise made to people that

Tata will come out with a compact, quality car within a price tag of Rs. 1 lakhs(3000 SGD), Tata Motors came up with a design, marketing and operational strategy keeping in my mind the constraints of:

  • Price
  • Market Scalability
  • Customer aspiration
  • Resource efficiency

2. COMPANY PROFILE:

Tata Motors Limited is India’s largest automobile company, with consolidated revenues of USD 14 billion in 2008-09. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world’s fourth largest truck manufacturer, and the world’s second largest bus manufacturer.

The company’s 24,000 employees are guided by the vision to be “best in the manner in which we operate best in the products we deliver and best in our value system and ethics.”

Established in 1945, Tata Motors’ presence indeed cuts across the length and breadth of India. Over 4 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company’s manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand) and Dharwad (Karnataka). Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata cars and Fiat powertrains. The company is establishing a new plant at Sanand (Gujarat). The company’s dealership, sales, services and spare parts network comprises over 3500 touch points. Tata Motors also distributes and markets Fiat branded cars in India.

Tata Motors, the first company from India’s engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business comprising the two iconic British brands that was acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea’s second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has launched several new products in the Korean market, while also exporting these products to several international markets. Today two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispano’s presence is being expanded in other markets. In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture fully-built buses and coaches for India and select international markets. In 2006, Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the company’s pickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun production of the Xenon pickup truck, with the Xenon having been launched in Thailand in 2008.

Tata Motors is also expanding its international footprint, established through exports since 1961. The company’s commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America. It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia, Senegal and South Africa.

The foundation of the company’s growth over the last 50 years is a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R&D. With over 3,000 engineers and scientists, the company’s Engineering Research Centre, established in 1966, has enabled pioneering technologies and products. The company today has R&D centers in Pune, Jamshedpur, Lucknow, Dharwad in India, and in South Korea, Spain, and the UK. It was Tata Motors, which developed the first indigenously developed Light Commercial Vehicle, India’s first Sports Utility Vehicle and, in 1998, the Tata Indica, India’s first fully indigenous passenger car. Within two years of launch, Tata Indica became India’s largest selling car in its segment. In 2005, Tata Motors created a new segment by launching the Tata Ace, India’s first indigenously developed mini-truck.

In January 2008, Tata Motors unveiled its People’s Car, the Tata Nano, which India and the world have been looking forward to. The Tata Nano has been subsequently launched, as planned, in India in March 2009. A development, which signifies a first for the global automobile industry, the Nano brings the comfort and safety of a car within the reach of thousands of families. The standard version has been priced at USD 2500 (excluding VAT and transportation cost).

Designed with a family in mind, it has a roomy passenger compartment with generous leg space and head room. It can comfortably seat four persons. Its mono-volume design will set a new benchmark among small cars. Its safety performance exceeds regulatory requirements in India. Its tailpipe emission performance too exceeds regulatory requirements. In terms of overall pollutants, it has a lower pollution level than two-wheelers being manufactured in India today. The lean design strategy has helped minimize weight, which helps maximize performance per unit of energy consumed and delivers high fuel efficiency. The high fuel efficiency also ensures that the car has low carbon dioxide emissions, thereby providing the twin benefits of an affordable transportation solution with a low carbon footprint.

In May 2009, Tata Motors introduced ushered in a new era in the Indian automobile industry, in keeping with its pioneering tradition, by unveiling its new range of world standard trucks called Prima. In their power, speed, carrying capacity, operating economy and trims, they will introduce new benchmarks in India and match the best in the world in performance at a lower life-cycle cost.

Tata Motors is equally focused on environment-friendly technologies in emissions and alternative fuels. . It has developed electric and hybrid vehicles both for personal and public transportation. It has also been implementing several environment-friendly technologies in manufacturing processes, significantly enhancing resource conservation

Through its subsidiaries, the company is engaged in engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools and factory automation solutions, high-precision tooling and plastic and electronic components for automotive and computer applications, and automotive retailing and service operations.

Tata Motors is committed to improving the quality of life of communities by working on four thrust areas – employability, education, health and environment. The activities touch the lives of more than a million citizens. The company’s support on education and employability is focused on youth and women. They range from schools to technical education institutes to actual facilitation of income generation. In health, our intervention is in both preventive and curative health care. The goal of environment protection is achieved through tree plantation, conserving water and creating new water bodies and, last but not the least, by introducing appropriate technologies in our vehicles and operations for constantly enhancing environment care.

With the foundation of its rich heritage, Tata Motors today is etching a refulgent future.

2.1 TATA GROUP AND ITS SUBSIDIARIES

TATA group’s portfolio includes wide range of businesses which are leading in their fields. Its total revenue in 2006-07 is $ 28.8 billion which is 3.2 % of India’s GDP. TATA’s business empire extends to over 80 countries across 6 continents. Similar to Jack Welch’s opinion that the business should either be first or second else it is better to sell the business, TATA groups companies excel it the fields wherever they started the business. TATA group has ninety eight companies that are basically operating in seven sectors.

3. ORGANIZATIONAL INNOVATIONS SYSTEM

Innovation in Tata Motors is not a recent phenomenon, but is a part of its legacy. The Company’s culture of perpetual search for excellence is highly attributed to the Tata’s ethos and incessant efforts of its employees in the past several decades to serve the customers by bringing continuous innovation in its products and processes.

The three major areas to illustrate how Tata Motors has effected innovation in the past few years.

  • Products
  • Processes
  • People

3.1. PRODUCTS:

Tata Motors created several breakthrough products in the past which changed the market dynamics and helped in providing a new customer experience.

407 platform in 1980s

Japanese LCV players had made inroads into the Indian automobile market inthe 1980s. Tata Motors came out with its innovative 407 platform which was designed to suit the Indian conditions. It quickly became the bestseller in LCVs and the platform still continues control 2/3rd of the market even in the third decade of its existence.

Indica in the late 90s-

This was the first indigenously designed passenger car in India and it was innovative in the sense that it provided more value for money in terms of internal space (comparable to the

Ambassador which was the benchmark in the country for internal space), contemporary features (comparable to Maruti Zen) and all that at a very competitive price.

ACE

Ace was India’s first mini-truck launched in 2005. While heavy trucks ply on the Highways, research showed the need for a small sub one-ton truck for intercity and truck terminal-to-nearby locations connectivity. The vehicle offered 4 wheeler functionality at 3 Wheelers price. The unconventional design features used in the vehicle were:

  • Innovative 2 cylinder Indica engine
  • Semi-monocoque body to withstand abuse
  • Rigid front axle and rear wheel drive for low cost
  • Flat face vs. semi-forward face to enhance the loading space.

NANO

The target price itself became the source of innovation, as you all must have read that the big names in the industry just rubbished it as false claims and commented that it was impossible to make a “CAR” at that price. However, you all know that the promise was kept. This was made possible through series of innovative ideas which led to acquisition of 37 patents by Tata Motors.

  • Engine was packaged on the rear side.
  • 2 cylinder engine (conventionally there are 3-4 cylinder engines)
  • Identical handles and mechanisms for left and right side doors
  • Instrument cluster in the middle of the dashboard
  • Unconventional seats
  • Interior space was maximized by pushing wheels to the corners and power train below the rear seat.
  • Product created was very contemporary and
  • It has sufficient Space inside to accommodate 4 persons comfortably.
  • Highly fuel efficient
  • Exceeds the current Safety requirements
  • Complies with the current emission requirements.

WORLD TRUCK

The new generation range of trucks which would match with the best in the world in performance at a lower life-cycle cost is being unveiled in just a few hours from now. It will create a new benchmark in India in terms of power, speed, carrying capacity, operating economy and trims and a new experience for the drivers in terms of drivability and comfort.

3.2. PROCESS:

Sustainability of innovation in products needed to be complemented with innovative changes in the organizational processes too. Some examples are:

    • Adoption of the Tata Business Excellence Model (TBEM)

It is based on Malcolm Baldridge Award for business excellence and Balance Score Card. This has created a culture of exploring various innovative ways to achieve excellence in all the organizational processes.

    • Use of IT systems:

It has been a benchmark and highly leveraged in the organization throughout the VALUE CHAIN.

    • Supply Side

Free-Markets for e-Sourcing, Supplier Relationship Management (SRM).

    • Product Development Process.

Institutionalized Stage Gate process in the organization is a benchmark in itself and ensures development of right product for the market and also an effective and efficient program management. Transition from in-house product development to a collaborative product development, utilizing the capabilities of suppliers, design houses, subsidiaries and associate companies specializing in different verticals. Internalization philosophyofTata Motors made some major global acquisitions like TDCV, JLR, Hispano, etc. Unlike many other Japanese / US players, they followed an innovative approach to be seen as a local company in the country of operation, i.e, as a South Korean player in South Korea and as a Spanish Player in Spain. This has helped them to appreciate the need and importance of all the stakeholders and they achieved this in four stages. This involves – “Initiating”, by understanding the language and basic facts of the country, “Familiarization” with their culture, “Harmonization” and finally “Synergizing” by sharing the best practices and work ethics.

3.3. PEOPLE:

The changing business environment and increasing complexity of business posed a huge challenge in achievement of business plans. Tata Group, of which Tata Motors is a part of, is well known for identifying and nurturing leaders. Tata Motors in the past has adopted several innovative means to leverage its human resource capabilities for achieving extremely challenging goals.

    • Identifying leaders through assessment centers –

This process has been effectively utilized by Tata Motors to identify young managers with very high potential. This process was started some 20 years back and has progressively created a pool of very strong and effective leaders who have proven their capabilities in some very challenging assignments given to them. This process has now been replicated by many other organizations too.

  • Putting them into challenging assignments and giving them International exposure Key projects like ACE and NANO are examples of some challenging projects which constituted of young leaders and engineers.
  • Breaking the functional silos by shifting from a hierarchical organization to a more CFT approach

All these experiences have helped us to redefine the way we have looked at innovation. And while innovation is normally understood as introduction of new and radical ideas in the area of products and services, our experience says there are several other areas that also require innovation in tandem, so as to effect an innovation in a company. Three of them I have already mentioned, that is, product, process and people.

Four other areas of innovation

Source of inspiration/ Purposefrom which the concept emanated, which stresses upon the fact that agility and understanding the unstated/ unfulfilled need of customers is the most important source of innovation. Tata Nano: In this case the idea struck in the mind of our Chairman when he saw a family of four (a man, his wife and two kids) riding on a scooter on a rainy day. He felt that there was an unfulfilled need of safe, affordable and an all weather alternative.

Price:

The price of Nano got fixed at Rs 1 lakh (2500USD). The achievement of price target was definite to create a major disruption in the car market as it fell midway between the price of a scooter and the cheapest car available which was priced at Rs 2(5000USD) lakh. Product design was choked for options because of the price target. Hence the setting the price as target triggered a series of innovation which involved:

Target Cost approach

which involved breaking down the cost targets to sub-system and then to component level.

Suppliers were challenged with the stringent cost target given to them, but they accepted the same and the result is in front of you.

Promotion:

Innovation lies in reaching the right customers always and communicating in a simple and effective manner. Tata Motors in case of Nano developed a portal, which got as high 30 million hits even before the launch of the car. After the launch there were another 30 million hits in less than a month. This helped the customers in becoming more aware of the product features. They received around 2 lakh(.2 million) applications, which is a good response by all standards.

Place/Reach:

Conscious of the fact that demand for such cars would be substantial from the remotest corner of the country, the sale of form for booking were facilitated through several banks. New insurance schemes were co-designed with the insurance companies, and now we are in the process of enhancing the sales and service network for better reach and service to the customers.

To summarize the experience, path breaking ideas, conceived and implemented in one or more of the 7 Ps, leads to INNOVATION.

  • Purpose
  • Product
  • Price
  • Place
  • Promotion
  • People
  • Process

4. INTRODUCTION TO THE NEW PRODUCT DEVELOPMENT:

Before the introduction of a product into the market, it goes through several stages of development. The stages of the product development includes the following

  • idea Generation
  • Idea Screening
  • Concept Testing and Development
  • Market Strategy
  • Business Analysis
  • Total Sales Estimation
  • Estimation Costs and Profits
  • Product Development
  • Test Marketing

As far as Nano is concerned, it falls new to the world products in the context that it has made a history for the cheapest car ever made without compromising on quality. i.e. best way value analysis.

Category

Players

2002

2003

2004

2005

2006

2007

A

Maruti 800

28

24

21

14

10

7

B

Alto,WagnorR,Santro,Indica

33

41

47

57

64

75

C

Esteem, Swift,

Indigo, Ikon, Ascent

12

15

18

22

26

33

D

Mercedes-C, Skoda Superb

   

1

2

3

4

P/L

Mercedes-E, BMw

1

1

1

1

1

1

   

74

81

88

96

104

120

Average Monthly Category Sales

4.1. idea generation

The main idea behind TATA NANO was perceived by the chairman of TATA group himself who saw a family of four going on a scooter in rain he wanted to develop a transport which was affordable, safe and could face all types of weathers. This turned out to be the most ambitious project of Tata motors till date when Mr Ratan Tata told this to one of his managing directors Mr. Ravi Kant he was also interested about the idea. Mr. Ravi Kant had learned from his experience that “People want to move from two-wheelers to four-wheelers but they cannot afford it”. More and more can, but Indian car buyers today represent a tiny slice of a potentially giant market India has just seven cars per 1,000 people. India’s auto industry has grown an average of 12% for the past decade, but just 1.3 million passenger vehicles were sold in India in the fiscal year ending March 2006. That means a billion Indians buy about the same number of cars in a year as 300 million Americans buy in a month. If four wheels cost as little as two wheels, that could change fast. About 7 million scooters and motorcycles were sold in India last year, typically for prices between 30,000 rupees and 70,000 rupees, about $675 to $1,600. Tata is targeting a price of 100,000 rupees one lakh, in Indian 19 terms of measurement or about $2,500 at current exchange rates, for its small car. That sounds impossibly cheap in the West but remains three times higher than India’s annual per capita income. The average pay for factory workers at Tata Motors is just $5,500 a year.

4.2. IDEA SCREENING

The next step was screening of ideas. There were many ideas like to make a scooter with two extra wheels at the back for better stability, A three wheeled car like a closed auto- rickshaw but the market requirement was a car, the car should be such that it doesn’t convey a message that it’s just an extension of a scooter it should be a proper car and likewise should also give the feel of a actual car. Trying to build a car cheap enough for motorcycle buyers seems to make sense now but seemed unachievable several years ago when Mr. Ratan Tata, chairman of Tata Motors had first mentioned his dream of building a one-lakh car in

2003 at that time the whole world thought that this gamble will never work out but ironically the whole world is now talking of small cars as $5,000 or $7,000 after TATA NANO was launched in 2009.

4.3. CONCEPT TESTING AND DEVELOPMENT

After surveying customers the end result was that people wanted a four wheeler which was cheap, dependable and strong enough to carry a load of 1 ton additionally four wheelers also increased the social status of the person who owns it .Four wheels not only practical appeal but also had a emotional appeal. Thus the new product was now to be developed but the following considerations would have to kept in mind when developing it-

  • The car should be built on a different platform than conventional ones.
  • It must be meeting all the safety and regulatory requirements.
  • It has to be built on a scale which shall be more than double the earlier launches of similar products and the ramp up must be smooth.
  • The car has to be designed so that it can be exported to other countries as the domestic demand may not materialize as per projections.

There were three main requirement of the new vehicle: it should be low cost, adhere to the regulatory requirements, and achieve performance targets such as fuel efficiency and acceleration capacity. Nearly 500 engineers were involved in the development of the vehicle and everyday they had meeting so that the decision taking and the problem solving process could be accelerated. Each engineer represented a different part of the car: engine and transmission, body, vehicle integration, safety and regulation, and industrial design. The body of the vehicle had to go under a number of iterations because the Mr.Ratan Tata wanted that a person whose height is over six feet can also fit into the car without any discomfort and finally the length of the car had to be increased by 100mm but eventually. The hard work of designing the car paid off and the designers were successful in their attempt to design an actual car which did not look shabby and inexpensive but looked sleek and sophisticated.

4.4. BUSINESS ANALYSIS:

COST:

Since the car had to be built within a cost of Rs. 1 Lac, no conventional design would work as the costs shall be higher and so the entire car has to be redesigned.

The design has to question the need of each and every component from the point of view of its necessity of existence and also the minimum requirements of its functionality. Value Engineering concepts have to be deployed to finalize the minimum requirements.

DISRUPTIVE TECHNOLOGY:

It’s a technology which brings radical change by introducing new ways of doing things.

Technology that is

  • Significantly cheaper than existing Technology.
  • Much higher performing?
  • Has greater functionality and
  • Is more convenient to Use.
  • Brings to market a totally different Value proposition than the one available and can change the Paradigm about a product.

The Guiding factor was that the cost has to be minimized for each component yet maintaining its basic functionality. The Alternatives are:

  • Reduce Consumption of Material being used.
  • Alternate Suppliers to get same material at fewer prices.
  • Use alternate materials.
  • Eliminate use of Material.
  • Eliminate a process Or a Combination of the above.

COST REDUCTION PARADIGM:

Value Engineering Alternatives:

The target was very clearly defined that, within the given cost structure all the components have to be allocated and the same had to be achieved using the available alternatives.

The Guiding factor was that the tax structure on materials and manufacturing must support the final cost. Decisions were

  • Establish factory in a tax free zone.
  • Get the tax advantages on infrastructure development.
  • Get the suppliers to establish base near the factory.
  • Get special concessions from State Govt.

In short select a manufacturing location where all the advantages could be achieved.

4.5. TOTAL SALES ESTIMATION:

The total sales had been estimated based on the following decisions

  • It was estimated that the demand for the people’s car shall be at least twice the demand for Maruti 800, the lowest end car.
  • Initial projections were at about 500,000 cars per year.
  • The basic reason was the conviction that the target price shall redefine the 4 – wheeler segment.
  • The price decision of Rs 1 lakh is definitely going to make a lot many people transit to
  • 4-wheeler fold and that shall explode the demand.
  • Only 10% customers of 9 Million two wheeler market transit to 4-wheelers it shall amount to 50% of the passenger car market share.
  • It was decided to set up plants with 5 lakhs cars per annum capacity and ramp the same up in stages, in line with increase in market demand.

4.6. MARKETING:

Product:

Tata has a very wide range of products it has passenger cars, utility vehicles, Trucks, Commercial passenger Carriers and Defense Vehicles.

  • Nano received media attention due to its targeted low price.
  • The Tata Nano is a rear-engine, four passenger ,city car built by Tata Motors,
  • It was first presented at the 9th annual Auto Expo on 10 January 2008, at Pragati Maidan in New Delhi, India.
  • Aimed primarily at the Indian market.

Price:

The prices of Tata motors are generally affordable acceptable by the general public at large. Tata always have something for the lower class people with Nano being their trump card. Giving discount every month and special promotion for certain type of vehicle also one of the strong strategy use by Tata Motors. Discount can be made from Company’s profit or from dealer’s profit at certain range.

Pricing strategies:

  • Penetration pricing
  • Low pricing policy with minimum profit margin.
  • Though the one lakh price tag is not fixed by TATA group, it was the word of mouth of people which fixed that range. This expectation of people creates a big challenge for the company.

Place:

Tata Motors has an extensive dealer network covering Indian and International markets. Wherever you are, there is a Tata Motors Sales and Service dealership close to you. The channel of distribution, physical location, and dealership method of distribution and sales is generally adopted. The distribution of vehicle must be in a very systematic way, from the plant to dealership and to end user. This is not only in India itself but also to the world-wide dealership.

Promotion:

Tata motors promote their products via Advertising and after sales services.

  • Enough use of one of the most important element of promotion mix, publicity reduces the necessity of other promotional devices for Nano.
  • Publicity as “One lakh car” by mouth to mouth.
  • Auto expo 2008,New Delhi & Geneva
  • Publicity through print & electronic media

For other type of promotional activities, cost factor that is 1 lakh price tag is to be keep in mind, nano watches, nano T-shirts available in retail clothing stores. Advertising: – TV & other mass media will be less effective, thus too much money will not be invested in this regard. Mainly word of mouth advertising will get more emphasis. Internet will be a major media for advertising.

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