Executive Post Graduate Diploma in Management

Assignment

“Company’s Innovation step forward”

Case Study of Bajaj Auto Ltd

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 ACKNOWLEDGEMENT

This case study is carried by as part of assignment of the Executive

Post Graduate Diploma in Management in Alliance University, Bangalore.

ABSTRACT

An Innovative company can apply new thinking faster than its competitors or
surprise its customers by offering products that makes the customers first realize its
need and then consume it.

The case study of Bajaj Auto Ltd (BAL). Starting with a focus on the theme and
motives involved in marketing of its products, the study revolves around the trends of
innovation in the core business and its contribution to BAL‘s success. Central to this
report is the innovative ways employed by BAL to maintain a balanced portfolio followed
by the comparison of the BAL‘s sales growth with the Indian two-wheeler industry over
the years and also the increase in market share of BAL in the same period.

The results from the respective company just taking a cue from the market trend
to fine tuning a product‘s operational efficiency, Bajaj Auto was not only able to sustain
in the market but is able to compete with the leader in the two-wheeler segment in
India. They managing innovation in all its business activities. Being intuitive and
proactive in understanding the changing needs of the market has made this possible for
BAL.

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 Table of Contents

1. Introduction..............................................................................................3

1.1. Background.......................................................................................3

1.2. Scope for study..................................................................................3

1.3. Purpose............................................................................................3

1.4. Methodology......................................................................................3

2. Theoretical Overview................................................................................4

2.1. Innovation Management....................................................................4

2.1.1 Innovation Adoption Curve................................................4

2.1.2 Innovation and Company success – The Link........................5

2.2. Product Portfolio Management...........................................................6

3. Results and Findings..............................................................................7

3.1. Indian Automobile Industry...............................................................7

3.2. Bajaj Auto Ltd........................................................................................8

3.2.1. Transformation Phase...........................................................8

3.2.2. Innovation in Portfolio Management......................................10

3.3. Regaining Lost Position......................................................................11

3.4. Performance of BAL...........................................................................11

3.4.1. Recovery Phase............................................................................12

4. Analysis and Discussion.............................................................................14

5. Conclusion.................................................................................................14

6. References..................................................................................................14

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 1. INTRODUCTION

1.1. BACKGROUND:

The rapid movement of businesses all over the globe is truly an emblem of
unprecedented growth of globalization. BUSINESS IS CHANGING after the expansive
thinking of the late 1990s; and most companies find themselves in a spot of bother
following global competition. Economic studies during recent times have concluded that
technology innovation contributes nearly half of the nation‘s productivity, economic
growth and standard of living.

1.2. SCOPE FOR THE STUDY:

In this study, Automobile industry is the major interest & field where I am,
Since it is presently one of the largest industries in global market. Being the leader in
product and process technologies in the manufacturing sector, it has been recognised
as one of the drivers of economic growth. Innovation proves to be the leveraging
factor for firms competing in this intense environment. This helps a company sustain its
market by catering to wide range of demand through creative products and services so
as to stay ahead in market.
This study focus on case of Bajaj Auto Ltd. This Indian company was chosen for
the study since it is the fourth largest two wheeler manufacturers in the world and the
second in terms of market share in India. The innovative measures are taken by the
company in all its business processes to take a leap into success and stay ahead in the
market.
Overview of Bajaj Auto Ltd and a theoretical framework of innovation
management and certain specific innovation tools and models. A glance on the positive
effect of innovation on certain companies is then addressed, followed by the innovative
moves made by BAL on its business processes.

1.3. PURPOSE:

The aim of this study is to explore the role of innovation in Indian two-wheeler
companies and to analyse its influence in the growth of such companies.

1.4. METHODOLOGY:

The study is based on descriptive research with a proposed case on ―Bajaj Auto
Ltd‖ and explanatory building of secondary data from various sources of references.

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 2. THEORITICAL OVERVIEW

2.1. INNOVATION MANAGEMENT:

(Drucker‘s, P. F., 1985), the guru of business strategy, describes innovation as

"the specific instrument of entrepreneurship, the act that endows resources with a new
capacity to create wealth" (Drucker‘s, P. F., 1985).

There are a range of levels of innovations a company can carry out along its business
process. A company to succeed it should find itself moving further up in the grids.

 Derivative: Incremental changes to existing products. Needs relatively less

resources.

 Breakthrough: Major changes to create entirely new product. Needs significant

resources.

 Alliances and partnerships: Associations with other firms to exploit certain

leverage (Wheelwright, S. C., 2003).

2.1.1 INNOVATION ADOPTION CURVE:

―Roger‘s Diffusion of Innovations Theory (Joe M. Bohlen, George M. Beal and Everett
M. Rogers) which is otherwise termed as ―Roger‘s Innovation Adoption curve‖ classifies
adopters of innovation into various categories as can be seen in the picture below. Each
segment denotes the verge of innovation by the companies as Innovators, Early
Adopters, Early Majority, Late Majority and Laggards respectively.

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Roger's categories are:
 Innovators (2.5 %)
 Early Adopters (13.5 %)
 Early Majority (34 %)
 Late Majority (34 %)
 Laggards (16 %)

As obvious there very less firms which fall into the first two segments which
requires innovation at every step of the business process to try out new ideas. "The
concept of adopter categories is important because it shows that all innovations go
through a natural, predictable, and sometimes lengthy process before becoming widely
adopted within a population" (Surry, D.W. and Ely, P.D., 2001)

2.1.2 INNOVATION AND COMPANY SUCCESS - THE LINK WITH OTHER

INDUSTRIES:

Various researches and studies are being done to find the extent to which a
company‘s success is relied on Innovation it carries out. Innovation has become an
inevitable component in business economy nowadays with globalization making the
world.

At the core of the company‘s success is the Toyota Production System – lean
manufacturing which cannot be seen as an example of high technological innovation,
yet it was instrumental in the company‘s success.

A Toyota engineer, Taiichi Ohno turned necessity into virtue, coming up with a
system to get as much as possible out of every part, every machine, and every worker.
The principles were simple, even obvious—do away with waste, have parts arrive
precisely when workers need them, fix problems as soon as they arise.

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 A lot more inventions were brought upon in Toyota production system which
were simple but proved to be mighty effective.

―Andon cord meant any worker can stop the assembly line if he notices a
problem,

―Kanban allowed workers to signal when new parts are needed.

In other cases, it has done so by reorganizing factory floors and workspaces in

order to allow for a freer and easier flow of parts and products. Most innovation focuses
on what gets made8. Toyota reinvented how things got made, which enabled it to build
cars faster and with less labour than American companies. Soon after, Toyota‘s
concepts were evident in almost all the companies and it meant it has had a real effect;
the auto industry as a whole is far more productive than it used to be. Even in the brim
of this commonality within firms, Toyota has been able to stay ahead in the market
mainly because of the distinctive element of Toyota to approach innovation as an
incremental process similar to Kaizen, continuous improvements.

Another major reason for the company‘s success can be comprehended from the
top management‘s views of rejecting the idea that innovation is the province of an elect
few; instead, is taken to be an everyday task for which everyone is responsible.

According to Matthew E. May, the author of a book about Toyota called ―The
Elegant Solution,‖ Toyota implements a million new ideas a year, and most of them
come from ordinary workers. Most of these ideas are small; though not all of them work
they are easier to reach. But cumulatively, every day, Toyota knows a little more, and
does things a little better, than it did the day before.

2.2. PRODUCT PORTFOLIO MANAGEMENT:

Portfolio management is about allocation of resources to achieve corporate

product innovation objectives. It is a dynamic decision process wherein a list of active
products needs to give way for new products to maintain a balance in the company‘s
offerings based on risk-return, value maximisation and so on. R&D projects are
constantly revised in this process to select and prioritize new projects based on
evaluation. Existing products may be accelerated, killed, or de-prioritized corresponding
to the need of the market. Product Portfolio Management is found to be of great interest
in recent years and despite its growing popularity.

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 Source: AberdeenGroup, July 2006

Portfolio Management is a high impact, high value activity that, when

implemented properly and conducted on a regular basis maximizes the return on
product innovation investments, helps company maintain the competitive position by
achieving balance and focus, forges a link between project selection and business
strategy which is seen to be a major interest to most top performing companies.
According to benchmarking studies conducted by Dr. Cooper and Dr. Edgett, some of
the problems that arise due to the lack of proper portfolio management can be the poor
balance between projects and the resource available, the non-sync of projects with the
business strategy. Portfolio Management is about doing the right projects.

3. RESULTS AND FINDINGS

3.1. INDIAN AUTOMOBILE INDUSTRY:

The Indian Automobile industry comprises of commercial vehicles, multi-utility

vehicles & passenger cars, two-wheelers and three-wheelers. Since the study is
focussed on Bajaj Auto Ltd efforts have been made only to study the trend of two-
wheeler industry which has witnessed a spectacular growth trend since the mid-
nineties. In recent years, the Indian two-wheeler industry has seen a spectacular
growth which has made India the second fastest growing two-wheeler market.

Technology transfer to the Indian Scooter to Motorcycle industry took place

mainly through: licensing and technical collaboration as in the case of Bajaj Auto Ltd
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and few other firms. BAL has technological tie-ups each with Kawasaki Heavy Industries
Ltd, Japan and Tokyo R&D Co. Ltd, Japan for production of two-wheelers and with
Kubota Corporation, Japan for diesel engines. With the two-wheeler market, especially
the motorcycle market, becoming extremely competitive and the life cycle of products
getting shorter, the ability to offer new models to meet fast changing customer
preferences has become imperative.

These relate to three main areas:

fuel economy,

environmental compliance,

and performance.

In any vehicle, the foremost thing a consumer would look for is the fuel
efficiency and it obviously becomes an interest area for manufacturers what with the
booming environmental concern over pollution contributing to global warming and such
phenomenon; manufacturers are also accountable for the environmental compliance. It
is not only that the OEMs are increasing their focus on in-house R&D, they also provide
support to the vendors to upgrade the technology and also assist them striking
technological alliances. Induced by the rapid growth by the motorcycles segment of
late, all the major two-wheeler manufacturers have increased their manufacturing
capacities13.

3.2. BAJAJ AUTO LTD:

The Bajaj Group founded in 1926 by Jamnalal Bajaj is amongst the top 10
business houses in India. Its footprint stretches over a wide range of industries,
spanning automobiles (two-wheelers and three-wheelers), home appliances, lighting,
iron and steel, insurance, travel and finance. In 1945, Jamnalal Bajaj had formed M/s
Bachraj Trading Corporation Private Limited, the flagship company, to sell imported
two-wheelers and three-wheelers. By 1977, the company saw its plant rolling out
100,000 vehicles in a single year. In another nine years, Bajaj Auto could produce
500,000 vehicles in a year. By 1994-95, Bajaj was racing to beat Honda, Suzuki and
Kawasaki in the two-wheeler segment internationally. By 1997, Bajaj faced tough
competition in the domestic market and its market share stood at 40.5%.

3.2.1. TRANSFORMATION PHASES:

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 New models were introduced in the 1970s, including the three-wheeler goods carrier
and Bajaj Chetak early in the decade and the Bajaj Super and three-wheeled, rear engine
Autorickshaw in 1976 and 1977. Bajaj Auto produced 100,000 vehicles in the 1976-77 fiscal
year alone.

The technical collaboration agreement with Piaggio of Italy expired in 1977. Afterward,

Piaggio, maker of the Vespa brand of scooters, filed patent infringement suits to block Bajaj
scooter sales in the United States, United Kingdom, West Germany, and Hong Kong. Bajaj's
scooter exports plummeted from Rs 133.2 million in 1980-81 to Rs 52 million ($5.4 million)
in 1981-82, although total revenues rose five percent to Rs 1.16 billion. Pretax profits were
cut in half, to Rs 63 million.

New Competition in the 1980s

Japanese and Italian scooter companies began entering the Indian market in the
early 1980s. Although some boasted superior technology and flashier brands, Bajaj Auto
had built up several advantages in the previous decades. Its customers liked the durability
of the product and the ready availability of maintenance; the company's distributors
permeated the country.
The Bajaj M-50 debuted in 1981. The new fuel-efficient, 50cc motorcycle was immediately
successful, and the company aimed to be able to make 60,000 of them a year by 1985.
Capacity was the most important constraint for the Indian motorcycle industry. Although the
country's total production rose from 262,000 vehicles in 1976 to 600,000 in 1982,
companies like rival Lohia Machines had difficulty meeting demand. Bajaj Auto's advance
orders for one of its new mini-motorcycles amounted to $57 million. Work on a new plant at
Waluj, Aurangabad commenced in January 1984.
The 1986-87 fiscal year saw the introduction of the Bajaj M-80 and the Kawasaki Bajaj
KB100 motorcycles. The company was making 500,000 vehicles a year at this point.

Although Rahul Bajaj credited much of his company's success with its focus on one type of
product, he did attempt to diversify into tractor-trailers. In 1987 his attempt to buy control
of Ahsok Leyland failed.

The Bajaj Sunny was launched in 1990; the Kawasaki Bajaj 4S Champion followed a year
later. About this time, the Indian government was initiating a program of market
liberalization, doing away with the old 'license raj' system, which limited the amount of
investment any one company could make in a particular industry.

A possible joint venture with Piaggio was discussed in 1993 but aborted. Rahul Bajaj told
the Financial Times that his company was too large to be considered a potential collaborator
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by Japanese firms. It was hoping to increase its exports, which then amounted to just five
percent of sales. The company began by shipping a few thousand vehicles a year to
neighboring Sri Lanka and Bangladesh, but soon was reaching markets in Europe, Latin
America, Africa, and West Asia. Its domestic market share, barely less than 50 percent, was
slowly slipping.
By 1994, Bajaj also was contemplating high-volume, low-cost car manufacture. Several of
Bajaj's rivals were looking at this market as well, which was being rapidly liberalized by the
Indian government.

Bajaj Auto produced one million vehicles in the 1994-95 fiscal year. The company was the
world's fourth largest manufacturer of two-wheelers, behind Japan's Honda, Suzuki, and
Kawasaki. New models included the Bajaj Classic and the Bajaj Super Excel. Bajaj also
signed development agreements with two Japanese engineering firms, Kubota and Tokyo R
& D. Bajaj's most popular models cost about Rs 20,000. 'You just can't beat a Bajaj,' stated
the company's marketing slogan.

The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw were introduced in 1997. The
next year saw the debut of the Kawasaki Bajaj Caliber, the Spirit, and the Legend, India's
first four-stroke scooter. The Caliber sold 100,000 units in its first 12 months. Bajaj was
planning to build its third plant at a cost of Rs 4 billion ($111.6 million) to produce two new
models, one to be developed in collaboration with Cagiva of Italy.

3.2.2. INNOVAION IN PORTFOLIO MANAGEMENT:

New Tools in the 1990s

Still, intense competition was beginning to hurt sales at home and abroad during the
calendar year 1997. Bajaj's low-tech, low-cost cycles were not faring as well as its rivals'
higher-end offerings, particularly in high-powered motorcycles, since poorer consumers
were withstanding the worst of the recession. The company invested in its new Pune plant in
order to introduce new models more quickly. The company spent Rs 7.5 billion ($185
million) on advanced, computer-controlled machine tools. It would need new models to
comply with the more stringent emissions standards slated for 2000. Bajaj began installing
Rs 800 catalytic converters to its two-stroke scooter models beginning in 1999.

Although its domestic market share continued to slip, falling to 40.5 percent, Bajaj Auto's
profits increased slightly at the end of the 1997-98 fiscal year. In fact, Rahul Bajaj was able
to boast, 'My competitors are doing well, but my net profit is still more than the next four
biggest companies combined.' Hero Honda was perhaps Bajaj's most serious local threat; in

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fact, in the fall of 1998, Honda Motor of Japan announced that it was withdrawing from this
joint venture.

Bajaj Auto had quadrupled its product design staff to 500. It also acquired technology from
its foreign partners, such as Kawasaki (motorcycles), Kubota (diesel engines), and Cagiva
(scooters). 'Honda's annual spend on R & D is more than my turnover,' noted Ruhal Bajaj.
His son, Sangiv Bajaj, was working to improve the company's supply chain management. A
marketing executive was lured from TVS Suzuki to help push the new cycles.

Several new designs and a dozen upgrades of existing scooters came out in 1998 and 1999.
These, and a surge in consumer confidence, propelled Bajaj to sales records, and it began to
regain market share in the fast-growing motorcycle segment.

In late 1999, Rahul Bajaj made a bid to acquire ten percent of Piaggio for $65 million. The
Italian firm had exited a relationship with entrepreneur Deepak Singhania and was looking
to reenter the Indian market. Bajaj attached several conditions to his purchase of a minority
share, including a seat on the board and an exclusive Piaggio distributorship in India.

In late 2000, Maruti Udyog emerged as another possible acquisition target. The Indian
government was planning to sell its 50 percent stake in the automaker, a joint venture with
Suzuki of Japan. Bajaj had been approached by several foreign car manufacturers in the
past, including Chrysler (subsequently DaimlerChrysler) in the mid-1990s.

3.3. REGAINING LOST POSITION:

In an effort to have a marked impact in the market, BAL launched a newer

version of the Discover in short span of time with 18 model in 18 month.
By this they become Market Leader again INDIA.

3.4. PERFORMANCE OF BAL:

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 Source: Company annual report

Fig: Indian two-wheeler industry

Given that motorcycles clearly drive two-wheeler sales, it is necessary to analyse

sub-categories within this segment. But before doing so, it is worthwhile to see how, over

time, from being a predominant scooter manufacturer, Bajaj Auto has become the second

largest manufacturer of motorcycle of India.

Table2 shows, Bajaj Auto has succeeded in this endeavour.
Between 1997-98 and 2003-04, we have increased our share in an explosively
growing and highly discerning market from under 15 per cent to over 23 per cent.
From being an insignificant player in the early 1990s, Bajaj Auto today is the clear
number two in motorcycles in India.

3.4.1. RECOVERY PHASE:

This tool holds a good measure to find out the range of innovations made by BAL.
The company‘s innovations are correlated against each of the 12 dimensions to see in
how many dimensions BAL falls into, when it comes to innovation.

i. OFFERINGS:

BAL has succeeded in bringing new products to the market that is valued by
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customers. The most innovative and successful offerings from Bajaj.

ii. PLATFORM:

BAL relies on a common platform i.e. the assembly line for most of its products
which helps the company to be economical both in terms of time and cost. Also has a
set of common components which includes the DTS-i component of an engine since
most of Bajaj Bikes come with this patented technology. Quantitative modifications of
the common engine allow the production of engines ranging from 150 cc to 220 cc.

iii. CUSTOMERS:

BAL initially targeted customer based on the age group.

iv. PROCESS:

Bajaj has restructured its products, channels and the project management
system. BAL is one among the influential bike manufacturer in the Asian market and
since the company has tasted success in the pilot projects in some other parts of the
world.

v. SUPPLY CHAIN:

BAL has linked SAP & ERP which enables seamless information flow along the
business chain. All those involved in the supply chain get up-to-date information on all
the business transactions made which assist in streamlining the supply chain operation
to higher efficiency.

vi. PRESENCE:

The company is fast in responding to services because of the huge service

network it has in the country, which is cluttered across every city.

vii. NETWORK:

Bajaj has kicked off a project to completely restructure the company's retail
network and create multiple sales channels. For example urban and rural markets as
well as its three-wheeler and premium bikes segments..

viii. BRAND:

Bajaj brand is easily recognized throughout India and few other Asian markets
where Bajaj has its presence. Its trademark logo, Ideally every firm wants to be

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 innovative in all dimensions but only a few companies like BAL find themselves in a
combination of these dimensions.

4. ANALYSIS AND DISCUSSIONS

In the last couple of years, the theme of this chapter has been the process of
“change” — of the ways in which Bajaj Auto has been transforming itself to successfully
meet the greater competitive challenges of the market. It is enhanced by a
complementary theme — of how the company has leveraged a successful change-
process to create products and a brand that inspires confidence.
Like “change”, “inspiring confidence” has many elements and is a continuous process. For
Bajaj Auto, “inspiring confidence”

5. CONCLUSION

A conclusion from the study an industry who believe running products

doing good and not working for new product parallel will vanish from the market.
In a world of rapid changes in customer preferences and shorter product life cycles, the
ability of developing and marketing top-class products shall depend upon the quality of a

company's in-house research, development and testing capabilities .

It has been evident that Bajaj Auto committed to building its in-house R&D capabilities &
Product portfolio. Consequently, win over the market.

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 REFERENCES

 Davis, T. and Milton, F. (2000), Global Innovation and Growth Survey, London,
PricewaterhouseCoopers.

 Drucker‘s, P.F. (1985), Innovation and Entrepreneurship, Practice and Principles,

New York, Harper & Row Publishers, pp 177.

 https://www.motorbeam.com/the-history-of-bajaj-auto/
 http://www.fundinguniverse.com/company-histories/bajaj-auto-limited-
history/

 https://www.bajajauto.com/about-us/75-years-of-bajaj-auto#home
 https://acasestudy.com/bajaj-auto-limited-case-study-analysis/

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