THE DISCUSSION

GIRISH TRIVEDI
Managing Director, Thermax Babcock Wilcox

Becoming a contract-manufacturer of refrigerators is not a good idea. Tarang should strive towards either solving the problem-which, in this case, translates into manufacturing and selling refrigerators under its own brandname to capacity-or part with it altogether by selling the refrigerators division. Contract-manufacturing is a half-measure, fraught with risks that are in no way commensurate with its benefits. And it does not fit into the company's long-term strategy either.

However, its decision to focus on services is sound. Tarang should leverage its presence in services to move into the Operations & Maintenance (O&M) segment of the air-conditioning and refrigeration projects market. And then, into the Build, Own, & Operate (BOO) business. From the customer's perspective, this is a good alternative since it means they will pay only for the cost of using the refrigeration- or air-conditioning facilities without bearing the cost involved in creating the infrastructure. From the company's perspective, this is good because it will help it leverage its skills in Engineering, Procurement, & Construction (EPC), and provide a tax-shelter (all boo activities come with an in-built tax-shelter).

So, what should Tarang do with its products businesses, viz. refrigerators and window air-conditioners? Actually, these are not bad markets for a company to operate in, and Tarang has established itself in both. However, it cannot aspire for a leadership position purely on the strength of its cost-structure. To succeed, a company must be willing to incur the costs and the risks inherent in the consumer-durables business: technology, product-development, a continuous launch-mode, and branding. If Tarang chooses to become a leader in both the domestic and the global markets in the epc business-and it should-it needs to look at its product businesses as second-strike businesses. Then, the company should form a joint venture with a transnational looking for a low-cost manufacturer. If necessary, it should even be willing to give the latter a controlling stake in the business.

There are some issues Tarang needs to address while focusing on projects. Its continuing success in this area will depend on a sound grasp of technology, excellent project-management skills, and the ability to manage working-capital efficiently. The company will also have to focus its efforts on maintaining an efficient customer interface. It is important that Tarang structure this business differently from its other businesses. Among other things, the company should be willing to overlook its own divisions in favour of other domestic and international suppliers in an effort to choose the best hardware and technology.
It is evident that Narayanaswamy has an unenviable task on his hands. But Tarang has no one to blame but itself. Although it seems to have adopted a number of initiatives, most of them, at best, seem to be pain-relievers. Not one has bothered to address the core issue which is really one of core competence and strategy. If I were in Narayanaswamy's shoes, I would start by re-visiting the findings of the first Richardson & Co. study. And act on them-at once.

MEENA GANESH
Director, Microsoft India

It isn't change that has brought Tarang to its present position; it is the pace of change. This is what sets the 1990s apart. The environment in which companies operate changes, the nature of competition changes, technology morphs, and business models change. In this era, companies have to evolve their own strategies for dealing with continuous change. Otherwise, they could find themselves in a losing situation. To extricate itself from the situation in which it finds itself, Tarang has to not just address the problem at hand, but also has to create a strategy that accounts for the future.

I see one of Tarang's key strengths as its low-cost manufacturing-facility for refrigerators. The emphasis on manufacturing does not mean that the company should focus on the retail market. Given that the market hasn't grown as it was expected to, and considering the magnitude of investments being made by transnationals in brand-building, that would be a bad move. Tarang will find it difficult to build brands in an area where there is minimal technology-differentiation. But the company can find a way to leverage its cost-leadership status.

Contract-manufacturing is an option but, as Manubhai Patel pointed out, there are some risks inherent in it. First, it ties Tarang to 1 or 2 companies, and any fluctuations in their fortunes can affect it. Besides, it will have no control on the performance of the companies it supplies to, and, in the event of their finding the domestic market uninhabitable, Tarang could be left high-and-dry. Second, such an arrangement will prevent Tarang from entering the retail market for the period of the contract.

Tarang has established its brand equity and, instead of relinquishing it, the company should consider encashing it by selling not just its manufacturing facility, but also the brand. Certainly, the thought of an acquisition like this will not be unpleasant to any global major, which can use this brand to cater to segments not catered to by the premium brands in its portfolio. Alternatively, Tarang can consider remaining in the retail segment, and focus on up-country or rural markets. Transnational consumer durable-manufacturers are, typically, not likely to focus on these markets. The distribution strength that Tarang has built up over a period of time will hold it in good stead here.
Another option is to be an OEM-supplier to catalogue-sales companies in the global market. The margins involved in this business are likely to be significantly higher, and Tarang can, if it so desires, supply to several such companies, thereby spreading the risks involved. This alternative also helps Tarang keep its options open: it can re-enter the domestic market in the case of a surge in demand, or if the weakening of the rupee against the dollar makes imports uncompetitive. If the company chooses this option, it can maintain its retail brand image through a strong presence in the air-conditioners market.
Although projects are Tarang's forte, there is some room for strategic-improvements here too. For one, the company can package and brand its offerings, or enter into strategic alliances with the global majors in project engineering. However, there are two issues that Tarang needs to keep in mind while going through this change:

The entire organisation has to buy into the change, and work towards making it effective. For this to happen, communication is a must. What I am referring to is not just communicating or selling the change, but selling the problem. Narayanaswamy has to ensure that the entire organisation knows about the issues faced by the company. Communicating does not mean a single memo or a slew of presentations; it means continuous communication. And constant reinforcement.

It is important that Tarang create a safety-net before embarking on the changes it has planned. One mistake most companies make is (mis)forecasting the future. For instance, it was an over-projection of demand by white-goods majors that led to the industry-wide epidemic of over-capacity. It is, thus, essential to build in what-if clauses into the company's strategy. For instance, when Tarang pulls out of the retail market for refrigerators and gets into the oem game, it may still want to retain the option of re-entering the market. What if the retail foray into the air-conditioner market turns out to be unsuccessful?

What is the alternative that Tarang should consider?

Tarang's predicament is typical of what Charles Dickens says in The Tale Of Two Cities: ''Twas the best of times, it was the worst of times.'' Tarang should view the changes that it is going through as one of the many that it will experience in the short term. It needs to create a learning organisation that constantly scans the environment and anticipates change.

R.L. BHATIA
Exec. Dir., Centre For Change Management

Theodore Levitt created the concept of marketing myopia in a classic article in the Harvard Business Review in 1977. He wrote that every major industry was once a growth business, and pointed out that while some continued to grow, others declined. ''In every case, the reason why growth slowed or stopped,'' he stated, ''was not because the market was saturated, (but) because there had been a failure of management to think strategically.'' The situation in which Tarang and, of course, Narayanaswamy, find themselves in today has a similar genesis.

What are the objectives of re-inventing Tarang? To my mind, there are 3 objectives: moving out of unprofitable business areas, focusing on core competencies, and using manpower productively.

To survive, a company needs to first map the future. It must construct a blueprint of how it plans to get where it wants to be. Narayanaswamy must first recognise the fact that it is the CEO's responsibility-and his alone-to set the future direction of the organisation. Participation should not dilute that responsibility. The key to strategic success is to gain broad commitment through participation rather than to strive for consensus.

It is also important that Tarang acquires a clear idea of the roles people-right from the CEO to the line-manager at the plant-should play in the strategic process. Companies that are best-in-class in the strategy process are characterised by 5 features. Narayanaswamy would do well to adopt them.

Tarang should have a common strategic language-a uniform vocabulary of expression that everyone understands.

The company should keep its strategy simple and specific so that mere mortals can understand and contribute to it.

Tarang should manage participation across the organisation by clearly defining roles, and creating opportunities for managers and workers to become involved.

The company should motivate the workforce to keep the organisation's vision a vital influence. There are many ways ceos keep the vision vibrant: from rewarding strategic initiative to building discussions about strategy into meetings and planning-cycles.

Narayanaswamy should involve himself in every aspect of the strategy-process: from ideation to implementation.
The name of the game for Tarang is value: creating it, and capturing it. One of the things that will let the company create value is its entry into the services business. Narayanaswamy would do well to ponder over 2 basic questions: what have I done in the last 24 hours to encourage the partial anarchy needed to nurture innovation and creativity at various levels of the organisation? And what is it that seems impossible today but, if done, would fundamentally alter the way we conduct business? In the answers to these questions lie the clues to the direction Tarang must take.

SANJAY TUGNAIT
Principal Consultant, PricewaterhouseCoopers

A swot analysis reveals that Tarang has several strengths. These include: projects, depreciated plant and equipment, a wide distribution network, a strong after-sales service network, cost-efficient operations, and the high calibre of its human capital. The weaknesses are: absence of product innovations and R&D, a high dependence on the performance of the construction industry, and a lack of diversification and growth in related market segments.

Clearly, there are a number of opportunities: the imminent growth in developing markets, the availability of local technically-qualified man-power, and the high entry-barriers that the company has built up for competitors in the EPC business. The company also faces 2 major threats: the lowering of trade barriers, and an increase in the number of global competitors.

In this context, my suggestion would be that Narayanaswamy should work towards creating SBUs. Such a move will help the company capitalise on its opportunities and thwart the threats. The 4 SBUs that Narayanaswamy needs to create are:

• Contract-manufacturing.
• EPC.
• Services.
• Facilities management.

Building shareholder value should be foremost in Narayanaswamy's mind while taking any business decision for Tarang. And the creation of separate SBUs with focused areas of business would help Tarang achieve that end.

The Contract Manufacturing SBU would ensure the utilisation of plant-and-equipment and human resources and, thus, promise steady income-flows. Narayanaswamy should continuously work towards making Tarang the lowest-cost producer in the world by following strategies like the global sourcing of components, the tiering of vendors, and reducing the number of direct vendors with which it interacts.

EPC has always been an area of strength for Tarang, and the company needs to build capabilities for managing larger projects and diversifying into other segments. This may involve building and acquiring technical talent in new areas. The Facilities Management SBU must focus on existing as well as the new customers of the EPC business, and provide them with an integrated solution: project-management, installation, commissioning, and servicing.

The Services SBU would focus on servicing retail and institutional customers with maintenance-contracts. Tarang would need to implement robust spares-management systems to reduce inventory-holding costs while minimising service-response times. Knowing the consumer is as important as knowing how to service a particular product-and Tarang needs to do both.

Tarang's actions indicate that the company does not view technology as a differentiator. Why would a company with a strong brand, excellent distribution network, and cost-efficient operations lose out to its competitors once the market opens up? The reason can be found in poor product-innovations; essentially an outcome of low investments in R&D. Tarang should focus on entering into technology partnerships. In the central air-conditioning business, for example, they could be for the manufacturers of chillers using centrifugal technology. Such an approach would ensure that the company continues to be the market-leader in the EPC business in the future too.

The world is moving from focusing on the brand to focusing on the customer. The future belongs to companies that own customers-not brands that serve customers. Customer Relationship Management holds the key. Tarang is fortunate to possess strategic strengths in 2 areas which involve a high degree of customer contact: service, and projects. It needs to leverage its competencies in these areas, and start viewing customers as strategic assets.

Every customer contact should be made a marketing event. Technology should be used as a proactive enabler for customer relationships. For example, customer history-rather than job-cards, which indicate the product history alone-should be available for the organisation to interact effectively with the customer. Technology will help reduce the costs per customer contact while allowing for a high level of customisation.

Narayanaswamy needs to re-shape Tarang into a customer-oriented organisation, and expand the company's business portfolio into services. For this, he needs to execute a well-planned change-management initiative that can build commitment and ownership during the implementation process. Tarang would, then, be well on its path of building shareholder value and achieving employee satisfaction.

Send us your solutions

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY
TEENS TODAY | NEWS TODAY | MUSIC TODAY | ART TODAY

© Living Media India Ltd