problem iii - honda

8/9/2019 Problem III - Honda

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PROBLEM III

Features of the organisation are out of alignment, parts of the organisation are working at

cross purposes, alignment activities- interventions- are developed to get things back in

sync.

HONDA AUTOMOBILE SECTOR

SoichiroHonda (1906-1992) was Japanese engineer and industrialist, and founder of

Honda Co.,Ltd.

In 1937, Honda began producing piston rings-used in motorcycles.

In 1948, Honda stared producing complete motorcycles.

In 1949, Takeo Fujisawa joined the Honda ( one of the most person lead to Hondas

success )

In 1968, launching the Honda 1300-Hondas first small car.

The Mission Statement of Honda is tried to maintain a global point of view, with the

dedication to supply the highest quality products at a reasonable price for worldwide

customer satisfaction. Moreover, taking new challenges with the pursuit of Initiative,

Technology and Quality, Honda is pursuing their 2010 Vision: Striving to be a company

society wants to exist through creating new value, globalization, and commitment for thefuture. Honda conducts its businesses in Japan and throughout the world (including North

America, Europe and Asia).

PROBLEMS

A continued economic slowdown, recession and the sustained loss of consumer

confidence in these markets, which may be caused by rising fuel prices or other

factors, could trigger a decline in demand for automobiles, motorcycles and power

products

This has adversely affected Hondas results of operations as U.S financial crisis has

affected the economics over the world.

Japan was already in recession, an appraisal that was reinforced by the biggest fall in

five years in corporate capital spending for the last quarter of 2007.

Honda lost 4.1 percent of its market share. Soaring gasoline prices and rising interest

rate affect deeply in North American Market.


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The shifts in market environment makes a change in motorcycles market, endure

models experienced a sales decline. However, overall sales were caused to decline by

shifts in market environment.

Moreover, Total demand in the United States in calendar 2006 fell 2.6% from the

previous year. Soaring gasoline prices in the summer buying season pushed up

demand for fuel-efficient cars.

Honda has a trouble with the problem with Chinese manufacturers-who have made

the most motorcycles in Southeast Asia -that have trademark of Japanese

manufacturers by violating Japanese intellectual property.

Consumers in this region do not have enough money to buy pure Hondas motorcycle.

STEPS TAKEN TO TACKLE WITH THE PROBLEMS TO ALIGN

ORGANISATIONAL ACTIVITIES

To deal with this problem, Honda figured out an alliance strategy with Chinese

manufacturers by producing copies instead of fighting. Utilizing this strategy, Honda

has made new model Wave in 2002 that has a reasonable price and high quality. This

model is suitable with the Vietnameses Income so it has become very popular in

Vietnam. The result was number of copied motorcycle has decreased dramatically.

To tackle with problems the changes in IT were made which led Hondas operationcontrolled more effectively.

The innovation means of production and mode of production, like the auto fit

machine, are used by Honda that can mass product to reduce the cost, save the time

and increase the capacity.

Respecting diversity- an open-door employment policy, is the policy that Honda

choose to manage its diversity.

Honda is shifting from a regional strategy to one based on a global perspective; andfrom fuel economy targets for product by weight or model to worldwide targets for all

product categories.

In business execution, separate headquarters have been setup base on geographic,

business and function. General Manager or operating officer appointed to each region

but some senior manager responded responsibility more than region or function. In

important matters, executive councils deal with regional managers before making

decision. So, system is working effectively and efficiently, Honda can adapt quickly

in each region.


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In internal control activities, Honda has built systems that include the formulation of

behavioral guidelines and procedures for self-assessment. The Company also has a

system to support initiatives of each division such as Business. Honda enhances the

trust and understanding of investors and shareholders by which Honda makes clearly

and disclosure activities such as quarter report timely and accurate.

In Hondas concepts of leadership, the company focuses not only on the high quality,

high efficiency, and low price products but also on the social and environmental

responsibilities. Building a people-friendly plant is a key factor improve organization

performance because of its well treatment policies positively affect employees

attitude. It provides good environment and fairly treatment for every associate in

company, resulting in increasing employees satisfaction and making them to well

contribute to organization.

ARVIND MILLS TEXTILE SECTOR

INTRODUCTION

Arvind Mills was promoted in June 1931, by Sanjay Lalbhai's grandfather, Kasturbhai

Lalbhai, and his two brothers, Narottam and Chimanbhai, in Ahmedabad. When Sanjay

Lalbhai took over the reins in 1975, Arvind Mills was at the crossroads.

By the late 1990s, Arvind Mills was the third largest manufacturer of denim in the world,

with a capacity of 120 million metres. Therefore, in the early 1990s, Arvind Mills initiatedmassive expansion of its denim capacity.

Problems that started in Arvind Mills -

A high wage structure, low productivity and surplus labor in the textile mills rendered

its businesses unviable in most the products categories in which it competed. The

emergence of power looms in the 1970s further exasperated the problems of Arvind

Mills. The government's indirect tax system at that time also reduced the profitability

of its product lines. In the mid 1980s, Arvind Mills switched to high-quality fabrics

requiring technical superiority that the power looms could not hope to match.

In the late 1990s, due to global as well as domestic overcapacity in denim and the

shift in fashion, denim prices crashed and Arvind Mills was hit hard. The expansion

had been financed mostly by loans from domestic and overseas institutional lenders.

As the denim business continued to decline in the late 1990s and early 2000, Arvind

Mills defaulted on interest payments on every loan, debt burden kept on increasing.In

2000, the company had a total debt of Rs 27 billion, of which 9.29 billion was owed

to overseas lenders.

Arvind Mills' expansion strategy resulted in the company's poor financial health in the

late 1990s. In the mid 1990s, Arvind Mills' undertook a massive expansion of its


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denim capacity in spite of the fact that other cotton fabrics were slowly replacing the

demand for denim.

The expansion plan was funded by loans from both Indian and overseas financial

institutions. With the demand for denim slowing down, Arvind Mills found it difficult

to repay the loans, and thus the interest burden on the loans shot up. In the late 1990s,Arvind Mills ran into deep financial problems because of its debt burden. As a result,

it incurred huge losses in the late 1990s. The company's credit rating had also come

down. CRISIL downgraded it to "default" in October 2000 from "highest safety" in

1997.

In early 2001, Arvind Mills announced a restructuring proposal to improve its

financial health and reduce its debt burden. The proposal was born out of several

meetings and negotiations between the company and a steering committee of lenders.

STEPS TAKEN

Then Arvind Mills went for debt-restructuring plan for the long-term debts.The

restructuring was overseen by Mr Jayesh Shah, CFO and advised on by a JP Morgan

Hong Kong team, led by Mr Ahmad Ayaz.

New markets were created, technology was upgraded, and looking at rationalising

their suppliers and competition was also tackled.

In 2003 - For the fourth quarter, Arvind Mills witnesses 280% growth in the net profit

Arvind Mills Ltd is assigned a `P1+` rating by CRISIL, which indicates a very strong

rating for their commercial paper.

In 2004 - Company turns itself around showing remarkable improvement in financial

performance. This was done only when all the parts of the organisation started back to

be in sync. The decisions were taken accordingly so that every activity in the

organisation are aligned. It was necessary to do so as they dont face the same

problem that they have faced earlier of non-repayment of loans which they had taken

for capacity expansion.

In 2005 - For the fourth quarter in a row, Arvind Mills has managed to post a profit

growth in excess of 80 per cent.

Currently Arvind Mills has a strong Research and Development focus on process

improvement, cost reduction and new product development. Arvind Mills

continuously modifies its production process to enhance flexibility on the use of

various types and quality of cotton. To further meet customer needs, Arvind Mills has

also introduced a new dyeing and processing method for denims.

Conclusion


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History has been witness to the Arvind Groups commitment to excellence, innovation,

perseverance and undying attention to customer and societal needs. As an organization,

Arvind has successfully integrated diverse businesses, services and products, unified by a

common vision - of enriching lifestyles.

Policy of change has fetched the company to well deserved results. Arvind Millss adoption

of new-age fabrics has seen the Company emerge as one of the largest denim manufacturers

in the world, while also bringing us global recognition for the manufacture of shirting, khakhi

and knitted fabrics.

State-of-the-art technology and equipment have made Arvind Mills one of the top three

producers of denim in the world, paving the way for the Company to emerge as a global

textile conglomerate. This cutting edge position comes to Arvind Mills courtesy technologies

such as Open-end Spinning, Foam Finishing, Mercerizing, Slasher-dyeing, Rope-dyeing, Air-

Jet, Projectile and Wet Finishing. Its only natural that Arvind Millss quality fabrics are in

high demand in the markets of Europe, US, West Asia, the Far East and Asia Pacific.

TORRENT GUJARAT BIOTECH LIMITED

PHARMA SECTOR

INTRODUCTION

Incorporated in 1991, Torrent Gujarat Biotech Limited (TGBL) became the largest new-

generation producer of Penicillin-G, meeting about 18% of the country's Penicillin needs. It

was one of the few companies in the world with an integrated technology to manufacturePenicillin-G. TGBL offers the entire range of -lactum products viz. Amoxycillin Trihydrate,

Ampicillin Trihydrate and Cloxacillin Sodium to a large number of customers in India,

Europe, Latin America and Asia.

Over the years TGBL was accorded WHO GMP certificates and Certificate of Suitability

from European directorate for Quality of Medicines (EDQM) for Amoxycillin Trihydrate.

TGBL is also a recognized Export House. TGBL also added more products over the years

and consolidated its position in India.

Problem began - Torrent Gujarat Biotech defaults on Rs 70 crore NCD

(Non-convertible Debentures)

Torrent biotech had good R & D but it was not able to have better control in its own

organization. It was more controlled by the management team of Torrent Pharma. Therefore,

torrent biotechs management team and torrent pharmas management team was unable to

maintain sync between the activities of torrent biotech. Further it led the organization into

cross purposes and they took decisions without proper forecast and analysis. Of these many

improper decisions further led torrent biotech failing to achieve its operating activities and it

was not able to pay out its debts as because of declining bottom lines.

Torrent Gujarat Biotech Ltd, a group company of the Ahmedabad-based Rs 2,000-crore

Torrent group, has failed to redeem the first installment of its Rs 70-crore non-convertibledebenture (NCD) issue. It has also defaulted on interest payment to them.


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Further, as its net worth was wiped out as on March 31, 1999, the company referred the

matter to the Board for Industrial & Financial Reconstruction (BIFR). The board registered

Torrent Gujarat as a sick industrial undertaking on May 31 this year. As a result, all secured

and unsecured liabilities of the company have been frozen.

Torrent group chairman Sudhir Mehta has admitted that owing to the "grim situationconcerning the Penicillin-G business despite a few favorable policy measures having been

initiated by the Central government in the Union budget and Exim policy, 1999, the

company, during the financial year 1998-99, has incurred a net loss of Rs 44.45 crore, and its

accumulated losses as at the end of March 31, 1999, has increased to Rs 108.84 crore".

"This has resulted in a severe resource crunch and the company has not been able to redeem

the first installment of NCDs falling due for payment on February 24, 1999, and also the

payment of interest for the half year ended March 31, 1999," Mr. Mehta adds.

Given the company's financial situation, the Gujarat government had declared Torrent

Gujarat as a relief undertaking under the provisions of the Bombay Relief Undertakings(Special Provisions) Act, 1958, on May 3 this year. As provided under the Sick Industrial

Companies Act Torrent waspreparing a scheme of revival taking into account present and

anticipated market conditions. The assurance was expected to hold little support for the

company's debenture holders who stand to lose heavily.

The face value of the company's debentures was Rs 55 per instrument, while the market load

was 100 debentures. What is expected to cause consternation among the debenture holders

isthat while Torrent Gujarat's equity is a mere Rs 45 crore, it incurred a net loss of Rs 44.45

crore during 1998-99. Against this, the company's sales turnover was a relatively low Rs

87.12 crore.

The Torrent group's financial woes was been compounded by fresh roadblocks created by the

Foreign Investment Promotion Board (FIPB) and financial institutions in the way of

offloading the group's 40 per cent equity in Gujarat Torrent Energy Corporation in favour of

PowerGen. Gujarat Torrent Energy is a joint venture between Torrent and the British power

major.

The deal, if concluded, would have fetched Torrent a hefty Rs 1,100 crore, enough to pull out

several of the group companies from financial wilderness. Delay in clearance of the transfer

of equity is being perceived as a setback to the group's revival and expansion plans.

Interventions done by management to bring back in sync the parts of

organisation that are working at cross purposes which led to problem

Torrent Cables, part of the Ahmedabad based Rs.29 billion Torrent group, amalgamated with

Torrent Gujarat Biotech onJuly 1, 2006. The scheme provides for compromise with creditorsof the company by way of settlement of current dues at 0.50 percent, which means the

creditors will forgo the balance dues of 99.50 percent. TGBL was highly centralised, TGBL

was a controlled by torrent pharmaceuticals.

Therefore it was highly centralized and only top management were involved on its decision

making process. Involvement of lower management was only from stage of implementation.


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Earlier to this amalgamation sterling biotech bought torrent unit for Rs. 55 crore.

Sterling Biotech, the countrys largest gelatin producer, has signed an agreement with the

Gujarat-based Torrent Gujarat Biotech (TGBL) to purchase its manufacturing unit at Masar

in Vadodara for Rs 55 crore in an all-cash deal.

Sterling Biotech chairman and managing director Nitin Sandesara said the company was

planning to convert the penicillin G plant into a facility for manufacturing gelatin derivatives

by upgrading the technology.

Sterling is on a capacity expansion spree, both in India and abroad, to cater to the global

gelatin market. The TGBL acquisition is part of the CAPEX (capital expenditure) programme

in the domestic front. It was known that companys plan was to expand its manufacturing

capacity and TGBL was under losses therefore it got support from Sterling.

SUBHIKSHA RETAIL SECTOR

INTRODUCTION

Subhiksha with a pioneering approach and giving new definitions to the retailing ventured

into the Indian retail industry. Since, their predecessors already existed and were doing well

in the market; they came up with an innovative approach to compete with them.

They have made an extensive research on customer behaviour and found that offering the

branded goods at a lower price than their competitors could make them stand in the

competitive retail industry.

Subihksha wanted to "pioneer a new trend" because of what they had found out about the

retail industry: that the No.1 retailer makes the most money; the No. 2 makes some money,

while the third (and the others) has to eventually shut shop.

In the year 1997, Subhiksha opened its first store at Thiruvanmiyoor in Chennai with an

investment of around Rs 4-5 lakh, with the theme, why pay more when you can get it for

less at Subhiksha

The expansion of the stores:

By March 1999, Subhiksha started expanding rapidly. From 14 stores, it expanded to 50

stores by June 2000. In the next two years, it had 120-130 stores across Tamil Nadu.

They decided to look at every part of India which is significantly literate and is a significant

consumption market. Telecom companies are their role model. They employed capable

regional managers and expanded. In 2004-05, they decided to have 420 stores in places like

Gujarat, Delhi, Mumbai, Andhra and Karnataka by 2006.

In 2005, Subhiksha started recruiting people in various regions. Subhiksha was operating

over 1,500 supermarket stores across more than 100 cities selling food, grocery, drugs, and

telecom products across INDIA.


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Cut price strategy:

Opening a chain of no-frills stores-no air-conditioning, no fancy lighting, and no touchand-

feel experience (customers have to ask for products at Subhiksha stores)-was a deliberate

strategy. Shops were located not on the main road, but just off it, to take advantage of vastly

lower rentals. The catchment area of customers is rarely beyond a two-km radius, since its

customers usually come on two-wheelers or on foot.

The triumphant journey of Subhiksha:

Earlier Subhiksha was the only local player with 150 stores (September 2006) operating

mainly in Tamilnadu. The retailer began growing rapidly outside the state, soon after infusion

of private equity capital by I-venture, the venture capital arm of ICICI. I-Venture took 24 per

cent stake in the companys equity, which until then was primarily held by Mr. Subramanian

and his associates. Riding on the back of rapid expansion, Subhikshas turnover grew from

Rs 330 crore in 2005-06 to Rs 833 crore in 2006-07, and then to Rs 2,305 crore in 2007-08

(year ending March 31, 2008). Likewise, having grown from 150 stores in September, 2006

in Tamilnadu to 1,600-odd stores across the country in September, 2008, Subhiksha has been

the envy of its competitors.

By the end of 2008 its gross turnover was of Rs 4,300 crore from 2,300 stores. Interestingly,

all the growth was, however, fuelled from a small net worth base of Rs 250 crore having

equity component of Rs 180 crore (face value of Rs 32 crore).

The problems and features of the organisation that led to cross

purposes in organisations activities

Risk in retailing and expansion

They did a lot of research before starting business in an area, and they had back-up plans in

place. They worked with very good people, and if something goes wrong, they try to take

corrective steps.

The big advantage they had was they were not creating products. So, there were no worries

about whether it would succeed or not. The retailer could not keep pace with its growth and

gets into liquidity trap as in the hope increasing its valuations, it kept postponing infusion of

equity funds.

Need for an IT Solution

The need was first felt when the company began to face problems managing its frontend and

supply chain operations using its existing local Enterprise Resource Solution (ERP).

"We were facing a lot of difficulty in accessing data across different regions using this local

solution," concurs Ankur Saigal, vice president (Tech Initiative), Subhiksha Trading

Services.


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"Besides business expansion brings its own complexities and we needed a robust platform to

streamline our operations and control."

Furthermore, the company needed a solution to manage the payroll system. Although it didn't

have any HR issues at the ground level, sending the payroll to employees on time was getting

difficult. The system worked manually, with a central team taking care of running 2-3 payroll

systems in a month depending on the availability of the bandwidth and the entire process.

To avoid further problems, the company decided to invest in a more effective ERP solution

and zeroed in on the SAP All-In-One solution in July 2007.

Supply chain despair bare Subhiksha shelves

Inventory management is austere, too. All goods are bought on cash to extract the maximum

discount from suppliers; SKUs (stock keeping units or the number of items on display) are

restricted to the fastest moving ones of about 1,500. Most of the SKUs are bought directlyfrom the manufacturer, cutting the intermediary out.

Supply chain software, developed in-house, keeps track of what's selling and what isn't.

Management is divided into two simple sections: operations, which is centralized and looks

after everything from ordering to accounting, and stores, which is responsible for all store

level activity. There's one manager for every three stores, and he reports to a chief manager

responsible for business development, who in turn reports to a vice president.

The VPs are responsible for sales targets. Mr R. Subramanian, Managing Director, admits to

a communication failure in informing customers why store shelves are empty. There is alot of pain around SAP (being implemented by TCS). We didnt think it would take so long.

All our 1,650 stores are being converted and we cannot run a legacy system alongside SAP.

An intermediate system in place means we will lose control. He says that the stock outs in

the stores could lead to some business losses but says the chain will bounce back soon.

Organisation out of alignment

The management of Subhiksha committed some eventual mistakes that led the company

towards the downward position and organisation was out of its alignment of work.

The first and big mistake committed by Subhikshas management was expanding through

opening of number of stores without sufficient funds in hand.

They thought to raise funds through market from equity. But when they actually implemented

their thought of raising capital through equity capital from market it was very late and the

markets already started collapsing.

Therefore, this trouble made them unable to tie up funds for their ongoing operations. That

slowly started choking and has lead to paralysis of operations.

Further following were the problems side by side for which Subhiksha was unable to focuson its main purpose and parts of organisation were working at cross purposes.


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1. Subhiksha Trading Services has come under fire from television channels for not

clearing advertising dues that run around Rs 8 crore.

2. Subhiksha is believed to owe Rs 35 crore against goods, Rs 18 crore against wages,

and Rs 20 crore against lease rents. The company, according to the report, is also

carrying a debt of Rs 700 crore at an average interest cost of 12 per cent per annum.

3. Expansion of Stores without adequate system control and IT Support. Thats why

there was a huge Audit and abnormal losses in the system. And when they have

started implement ion of SAP the time has gone for survival of Subhiksha.

4. Maharashtra FDA, the state governments regulatory authority for food and drugs,

had asked Subhiksha to suspend operations of its warehouses at Bhiwandi (Mumbai)

for 20 days as well as had cancelled licences of three of its vendors, charging that they

had failed to maintenance health and hygiene norms as prescribed by the regulator.

5. Many wholesale suppliers in Azadpur subzi mandi, or vegetables market, have

stopped supplying fruits and vegetables to Subhikshas outlets in the National Capital

Region (NCR) surrounding the national capital. This comes in the wake of the

company holding up payments for two to six months against normal credit period of

one month.

6. Lack of strong Hr policy and Staff--- Due to this Shubiksha was not able to retain the

talent which he initially bring into Junior, Middle and high level management.

Whatever was remaining with it is all family bound with no commitment policy.

7. They were paying huge rentals for these stores, which was a huge drain on the

company's finances.. There are huge frauds while entering in to rental agreements by

their own management people. There was no proper check and control on this cost

though this is a very crucial part to defeat competitors and to gain profitability in

future. This, coupled with less than-expected footfalls, drove the operational costs to

unsustainable levels.

8. The wrong assumption that telecom segment is a sound, and profit making segment.

The CEO never looked in to system losses arise from telecom. Subhiksha stores

always sell handsets at below DP while its benchmarking is to match DP. No controlon inventory of mobile accessories and there stock value and were unable to circulate

the working capital.

9. Meanwhile, the company has closed around 90 grocery stores across the country over

the last one month or so. The company has also significantly reduced the inventory

levels in its mobile retail arm - Subhiksha Mobile stores.

Thus sinking into unrepaired conditions Subhiksha has to compete with its high profile

competitors like RPG, Reliance retail and Future group etc.

The raise of the company thus gradually started sinking down step by step and now stands on

the verge of collapse.


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The market was tough due to entrance of its competitors and banks were cautious about

lending, but still they were in thought of getting back on track.

Subhiksha, which was forced to shut all its stores as it ran out of cash, is in talks with over ten

banks to restructure loans of nearly Rs 750 crore through a CDR (corporate debt

restructuring) exercise. Its promoter R Subramanian has said that the company can resumeoperations after it gets cash of Rs 300 crore.

In all, 13 banks have cumulatively lent Rs 750 crore to the company. The banks that are part

of the restructuring include ABN AMRO Bank (Rs 50 crore), Bank of Baroda (Rs75 crore),

Centurion Bank of Punjab (Rs 40 crore), Development Credit Bank (Rs 25 crore), Federal

Bank (Rs 50 crore), HDFC Bank (Rs 65 crore), ICICI Bank (Rs 155 crore), Standard

Chartered Bank (Rs 25 crore), The Hongkong and Shanghai Banking Corporation (Rs 85

crore) and Yes Bank (Rs 50 crore). Such interventions helped to get things back in sync for

that time.

Banks have provided funds to Subhiksha which they were actually in need of. It can be saidthat it was an attempt made by Subhiksha to bring back the organisations activities back in

sync. Finally Subhiksha was not able to bring back the organisations working which went

for cross purposes that led to shutdown of Subhiksha though it has made an attempt by

convincing the banks to get them funds.

problem iii - honda

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