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Question-2: What could be the reason for the company initially missing the bus in the
retail ACmarket? Compare Voltass e perience with the e perience of other leading
companies in the ndianconsumer durable market, which suffered greatly when the
market was opened to competition? Whatfactors (internal and e ternal) helped Voltas
win back market share in the AC market, when several ofits contemporaries wilted
under competition?
In 1993, the excise duty on ACs was reduced from 110% to 60% which made the
unorganized sector lose
its price advantage, thus helping organized players to make further inroads.
y
Several MNCs entered the retail AC market in the period. With their market expansion
efforts,
on one hand.
y
Increasing prosperity levels among Indians on other, the retail AC market started showing
healthy growth.
y
However, amid its restructuring efforts. Voltas failed to capitalize on these changes.
By 2001, Voltas was reduced to being a marginal player in the retail AC market with a mere
6.8% market
share and the 7th position in a market with 17 players.
Till 1990s, before the market was opened to competition, Voltas had dominated the
Indian AC market
with a market share close to 40%. The unorganized sector accounted for another 50% of
the market.This clearly shows Voltas experience cant be compared with other leading
companies as their combinedmarket share was only 10%. And due this only Voltas also
suffered maximum when market got intorecession.
Vision and fortitude were the essential ingredients in the Voltas revival, but it was
leadership
that defined and drove the comeback
Mr Khurody began the restructuring task by forming a core management team comprising
Mr Mr Soni,then head of finance, human resources chief K. S. Oberoi, and Bir Singh, head
of business excellence.The roadmap was charted and areas of restructuring identified
before work began on all fronts. Thechange mantra was straightforward: chop, revive and
grow. The objective was a leaner and more agilecompany which would parlay its prime
strengths in air conditioning and engineering.
With these criteria, Voltas' assorted businesses were scrutinized pitilessly with two
key criteria-
1.First, was the business sufficiently attractive, especially in the global scenario? This
included
evaluation on market size, likely growth and competitive pressures.
2.Second, did the company have the required capabilities to compete successfully? This
included a
dispassionate assessment of Voltas vis-à-vis the competition on critical success factors in
the
business.
Scrutiny on both these counts provided the leadership team with a common measurement
tool forassessing the company's diverse business portfolio. Businesses not passing the test
the whiteelephants, the bleeders, the unsustainable elements and non-core activities
were dropped with noregrets.
Voltas reorganized its remaining portfolio into four clusters: international operations
(primarily
electro-mechanical projects in the overseas market); air conditioning and refrigeration
(primarily HVACprojects in India); unitary products (room air conditioners, water coolers
and commercial refrigerationproducts); and engineering products and services. Chief
operating officers were appointed and handedover a mandate to manage the business with
financial and operational freedom.
mplicit was the redefinition of the company as a provider of engineering solutions,
with
manufacturing as an important support activity. These were the businesses which had
yielded the mostsustainable growth for many years. The model of relying entirely on in-
house manufacturing wasreplaced with an outsourcing-assembling-branding model of
business. This delivered a twin advantage:Voltas cut down its cost and, at the same time,
climbed up the market-share ladder with technologicallysuperior products.
6etween 1998 and 2003, Voltas's rightsizing drive brought down its staff numbers
from 10,269 to
3,935. The VRS exercise accounted for 2,681 of these. The VRS cost Voltas Rs 135 crore,
but resulted in
annual savings in staff cost of Rs 60 crore. Taking the revival agenda forward,
contemporary corporatehuman resources policies were introduced. The focus shifted to
training and development, high-performing employees were rewarded, and salaries were
linked to performance.
For financially shaky Voltas, managing cash flow for the revamp was another priority-
1. Shedding non-profitable businesses and selling idle real estate and investments coughed
up Rs 410
crore.
2. This was used to repay debts of Rs 260 crore and also pay for the VRS initiative.
3. The company's annual interest payments have been brought down from a high of Rs 48
crore in 1998
to Rs 2 crore in 2004.
The Voltas of today bears the stamp not just of a reassessment of business priorities, but
of aprogressive and innovative outlook worthy of a global player. With all restructuring
measures in placeand firmly consolidated