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Tie-Up TraumaJAYANT MEHTA, THE CEO OF BEACON APPLIA-nces, was in a quandary. Circumstances hadforced him to seek an alliance with an overseaspartner, and he had two potential collabora-tors lined up. But the company which Mehtawould have ideally liked to tie up with had stip-ulated a string of preconditions, which wentagainst the grain of all he had learnt under thetutelage of his father, the founder of the busi-ness, especially with regard to the handling

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tunities came its way, without any overallstrategic thrust. But turnover had grown fromRs47 crore in 1980to Rs 146crore in 1994.ORGANISA TIONAL STRUCTUREMEHTAWASABSORBEDIN HISTHOU-ghts. The afternoon sun beat down onthe golden sand and the blue sea lookedinviting. But he didn't want to take a dip, pre-ferring to continue his musings instead. Howhe missed the benign guidance of his father!Govindbhai was an empire-builder as well asa people man. He nurtured BALike a parentnurtures a child. He took a personal interestineverything that needed to be done, and thewell-being of all his err.ployees.Over the years, Govindbhai had inves-ted in keeping his people motivated andinspired. Loyalty to the business and to thehead of the company was something thatwas rewarded well. The organisation depen-ded heavily on the skills and commitment ofa fewkey people. Some ofthese were:Name:Designation:Qualification:Profile:

Hari GuptaVice-president (commercial)B.Com.BALwas his first job. Starting asan accountant, he had quic-kly gained the trust ofGovind-bhai, and soon establishedhimself as his right-hand man.Now he handled finance andaccounts, materials, adminis-tration, and personnel mana-gement. Trustworthy and hard-working, his loyalty to the cor-poration was unquestionable.

Name:Designation:Qualification:Profile:

Manu MalaniGeneral manager (works)Electrical engineerStarted his career with AvonElectrical Appliances, andjoined BALn 1986as an assis-tant plant manager. He waspromoted asplant manager in1989, and had assumed hiscurrent responsibility in 1993.Hewas incharge ofall factory-related issues including pro-duction, factory accounts,and industrial relations.

Name: Amrish KhannaDesignation: Vice-president (marketing)Qualifications:BA, diploma in business

managementWith BALsince its inception,the colourful and flamboyantKhanna was a shrewd marketstrategist. With his marketingsavvy, BALhad always beenneck-and-neck with Avon.Much ofthe success ofBALandits brand equity was becauseof his maverick mind.

Profile:

Personnel systems in the company werepractical, basic, and functional since the per-sonnel function had been clubbed with thefinance and materials function under Gupta.A system of confidential reports served thepurpose ofperformance appraisals, and ann-ual increments and promotions were basedon the recommendations of departmentalheads. There was a seven-grade system ofwage hierarchy, which adequately providedfor the personal aspirations of people wholooked forward to a promotion every fewyears. Other systems of time management,benefits administration, and manpowerinformation were also firmly in place.THE PRESENT

MEHTA WAS OBLIVIOUS TO THEsounds of the merrymaking from thedistant picnickers as he recalled how the sud-

den demise of Govindbhai in February 1993had left him in charge of the company's for-tunes. The period from February to Novem-ber 1993had been taken up in a whirlwind of

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JAYANT MEHTA. :CEO

--.. [~~~,~~~~~~~!~~~~~~_l ~~~:,!~~g~~~'IGA~Jfuneral rituals, condolences, and legal mat,ters relating to the transfer of his father'sestate and properties in his name. Since Nov-ember 1993,Mehta had managed to keep thefunctioning of BALon an even keel and theenterprise was sailing smoothly.

Then, one day in January 1995, Khannawalked in with the news that Avon Electricalwas pursuing joint venture plans with a Britishfirmfortechnical collaboration and a market-ing tie-up with a Taiwan-based firm in the hi-tech segment ofmicrowave ovens, microchip-controlled washing machines, and a range oflifestyle products like hair dryers, electricshavers, and food processors. Inthe next fewdays, Mehta and Khanna learnt that prelimi-nary market surveys had been undertaken inthis regard, and effortswere on to select a siteformanufacturing facilities. This new linewasexpected to be launched by March 1996.If BALdid not do anything, it would notsurvive. A quick rethinking of strategy was inorder. Mehta promptly called a meetingwith his trusted trio-Khanna, Gupta, andMalani-to discuss a strategy for BAL.At theend ofseveral rounds oftalks, itwas obviousthat BALwould have to counter Avon with a

[ .'~~~g~ii~[Jsimilar, if not better, product range. But thetechnology for products like microwaveovens was not available, and BALoo had notinvested in R&Do develop the technology forsuch products. Itwas obvious that theywouldhave to rope in an overseas collaborator.

Enter Sanjay Sinha. A consultant, he hadbeen instrumental in catalysing several newjoint ventures over the last two years. AtKhanna's behest, he was retained by Mehtato explore potential collaborators for BALnthese hi-tech segments. When he contactedseveral such prospects, two of them showedsome interest in investing in India. The firstofthese was Mounsignex of France, a fairlywell-known brand in Europe.

In India too, Mounsignex enjoyed a fairamount of brand equity as was evident fromthe increasing number of Indians whobrought in Mounsignex microwaves andappliances from abroad. The second poten-tial collaborator was Chang Home Productsof Taiwan, a totally unknown name in theIndian markets. Consumers in Taiwan per-ceived Chang products as cheap and effici-ent. However, with the quality and reliabilityof its products not very high, Chang catered

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CASE STUDY

largely to the lower segment ofthe market.For Mehta, Mounsignex was an obvious

choice. With its brand equity already some-what established here, Mounsignex and BALcould produce tremendous synergies andemerge aswinners. Spurred on bythe encour-aging signs received fromMounsignex, Mehtamade a trip to Paris to initiate a joint venture.The response was favourable, and Sinha setabout the task of framing the collaborationagreement. Mounsignex was willing to investin India with BAL,ubject to four conditions.One was that the business areas be ration-alised. The appliances group was to be set upas an autonomous entity with 40 per centequity participation from Mounsignex. Theother areas of business could be handled bythe family. Two, the production facility atVikhroli would be modernised with techni-cal and financial investment from Moun-signex. The third condition was that BAL'Shuman resources should be restructured by:. Setting up a human resources departmentwith a focus on training and development,headed by a professional reporting to Mehta.. Carrying out a job evaluation exercise.. Reducing the hierarchy from the presentseven to four levels. And the organisationstructure should be reconfigured, based onobjective measures ofwork and performance.. Reducing manpower by about 30 percentbased on the job evaluation study.. Recruiting professionals in key areas likecost accounting, purchase, and quality.And the fourth condition imposed byMounsignex was that four representatives ofthe French company would be appointed onthe board ofdirectors of BAL.THE DILEMMATHESUNWASSETTING,ANDA CHILLYwind had started to blow. Ketaki andRinkucame up and told Mehta that theyweregoing in. He told them to go on ahead andthat he would follow in a short while. Mehtathought once again ofthe decisions ahead ofhim. On the surface of it, the Mounsignexproposal seemed to make a lot of sense.In essence, it was just what a lot of localfirms had been doing ever since the reformsprocess had begun.

However, some doubts continued to nagMehta. He did not want to go into this majordiversification being pushed by the competi-tion. He was a prudent risk-taker, and thou-ght through all his decisions intensely. BALhad always been an organisation which

firmly believed in the power of caring for itspeople. A downsizing exercise would bebound to have the undesirable fallout of los-ingout on the goodwill ofthe employees thathad been earned over the decades.

He had heard from his friends in the cor-porate circuit how strong, vibrant organisa-tion cultures, like BAL'S,ad drastically chan-ged as a result of the flattening of hierarchiesand resulted in insecurity and a demoralisedworkforce. He had also witnessed howorganisations that had gone in for flat struc-tures were paying the price in terms ofhigherturnover in their managerial ranks. In manycases, organisations had landed up losingthe good talent they had, and the people thatstayed behind were the mediocre ones.

BALhad acquired the reputation of beingasolid and steady employer. Itsindustrial rela-tions situation had been eventful, but peace-ful.The organisation had been able to nurtureits managers' ambitions and provide themwith ample opportunities for growth and pro-motion. Mehta believed that the human ele-ment was critical tomaintaining and creatingthe competitive edge ofBAL.Besides, the exist-ing structures had served the company well,and there was no real need to change the waythey had been doing things so far.Somehow, some of the conditions putforth by Mounsignex did not fit in withMehta's way of doing things. This was partic-ularly true of the clauses about reducing thenumber of levels in the managerial hierar-chy. He felt that this would stifle the growthopportunities that the average Indian man-ager wanted. At the same time, Mehta didacknowledge the need for providing morefocus to the training and developmentalactivities that a professionally-qualified HRDmanager could undertake.The wind had died down and the tide hadgone out. Mehta picked up his belongings andmade hisway to the beach house. Tomorrowmorning, he was to meet the Mounsignexteam for the final,and crucial, round ofnego-tiations for their joint venture. Should Mehtaagree with the conditions that Mounsignexhad imposed? Or not? That was the criticaldecision that Mehta had to take that night.. Case Study by ANEETA MADHOK,Professor of HRD& OrganisationalBehaviour, Narsee Monjee Institute ofManagement Studies, Bombay.Refereed By the BUSINESS TODAY PanelOf Referees

Moreover, Mehtawas convincedthat reducingthe number ofjobs would erodethe goodwill BALhad built up overthe years

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Solution-ATHE WR[TING ON THE WALLis too stark for Mehta toignor.e. Unless he evolves astrategy to counteract his competi-tor's moves,BALwill soonwitnessadecline. He has acted fast in identi-fying a potential foreign collabora-tor with a brand name known bothto consumers in Europe and toIndians returning from abroad.Typically, the proposed collabora-tion is conditional and carries sev-era[ riders. And these conditions areperfectly valid.

However, they raise some basicissues.ShouldBALfocusonly on theappliances business and sell off theother businesses? What will the role of Mehtaand his team be? Should BALabandon a"concern for people" approach which hasworked well so far in favour of a "concern forproduction and marketshare" culture whichMounsignex apparently wants? How wouldone achieve a transition from a decision-making style based on family ownership to aprofessionally-managed environment?

!\ERNEST FERNANDES....

Director, Xavier Institute ofManagement

Mehta has several points inhis favour.Hehas worked for many years in the plant. He issensitive to what makes people tick and alsoto the technical aspects of his business. Hisapprehension that restructuring could seri-ously damage the most productive asset ofBAL-its people-is well-founded. The cha[-lenge before him is to manage the change ina planned, smooth manner. He would bewell advised to focus only on the appliancesbusiness. He should take his employees intoconfidence while explaining to them why thecollaboration has become imperative andthe benefits it would bring to the company.

Mehtashou[d dissociate himself from day-to-day operations and delegate more of hisoperational responsibilities to Gupta, Malani,and Khanna. Now is the time for him to moveout of the nitty gritty and concentrate on pol-icy issues and strategy. Finally,he should takedirect responsibility for the HRDfunction untila full-fledgedHRDdepartment comes up. Thetransition from a family business environmentto a professionally-managed companywou[dbe less bumpy if Mehta takes a personalinterest in matters relating to people.

Solution-BTHE KEY ISSUEBEFORE MEHTAiswhether the conditions impo-sed by Mounsignex with regard tohuman resources management willfritter away the accumulated good-will of employees, which has beenone of the success factors tilldate atBAL. Inherent in this is the need tochange the prevailing structure ofthe organisation.A change in organisationa[structure is always a sequel to achange in strategy which, in turn,flows fromchanges inmarket forcesand the external environment. Tosurvive the competitive onslaughtand to exploit emerging consumer

needs, business strategy needs to change.This calls for a focus on the core business,which, in the case of BAL,happens to be appli-ances. This is precisely the condition put for-ward by'Mounsignex. The change in strategy

C. SELVAN.General manager,

(marketing), Heinz India

...

has necessitated a change in structure.And Mehta should keep this in mind whileevaluating the conditions stipulated bythe collaborator.

A change in structure implies severalthings. It crushes the pyramid. It reducesmanpower requirements; it reads to dep[oy-ment of people into unfamiliar areas. Itgenerates insecurity, demotivation, anddemoralisation. [t might result in an exodusof talent which is badly needed at theorganisation. But it is a myth that flatstructures cannot satisfy the career aspira-tions of hi-fliers and whiz kids. Today's man-agers are no more interested in mere upwardmobility, which only means changes in title,perquisites, and an illusory status. Theydemand larger responsibilities, empower-ment, challenging targets, and performance-related compensation.

But any talk of manpower reduction,even in a liberalised context, sends shock-128 BUSINESS TODAY. OCTO BEl' --'J1 1Q'"

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aves through any organisation. However,xcessive manpower too has its hazards. Itlakes the organisation uncompetitive and~thargic, with under-employment and low,roductivity-all of which reduce the earn-ngs of managers over time. Mehta shouldeep an open mind on the issue of restruc-uring, and take a longer-term view. Heihould not lose sight of the fact that as theomentum ofbusiness growth picks up-assequel to the collaboration-it will open

f- ew opportunities for people within.

Instead of looking at the conditions of

..

. ounsignex as causing instability at BAL,hehould examine how the association wouldenefit BAL.He should demand the transfer~f product technologies, access his ownesources in order to upgrade the technical

and managerial skills at BAL,and take stepsnecessary to make BALa stronger organisa-tion. Heshould, in fact, seek the deploymentof expatriate managers to accelerate theprocess ofchange.

The trust and faith of employees are nodoubt valuable, but that alone isnot enough.Mehta should realise that survival in a com-petitive environment depends on their skills-Dase.Any attempt to enhance the skills ofthepeople in an organisation should be wel-come. It is in this context that Mehta shoulddelink the personnel management functionfrom the vice-president (commercial) andtake on a full-time HRDprofessional. Once heis aboard, it will send out the necessary sig-nals to people in the organisation. And pre-pare them for change.

olution-CHE STAND TO BE TAKEN BY MEHTA INthe final round of negotiations with Mou-

I

nSigneXdepends on his response to the con-ditions put to him by the collaborator. Withthe changed market scenario, it is imperativeto adopt a course of action whereby BALanretain or improve itsmarket position. Hence,the condition of rationalising the businessand having the appliances group as an auto-nomous entity isrelevant. Itisas necessary tomodernise and expand the existing manufac-turing facilities. Itis also obvious that Mounsi-gnexmusthave itsrepresentation on the boardofBALs a sequel to equity participation.Mehta's dilemma isabout human resour-ces. But he should accept the suggestion ofsetting up an HRDdepartment under a profes-sional manager reporting directly to him. Ajob-evaluation exercise willbring out the factthat although there are several grades ofmanagement staff at BAL,here are only fouror fiveclusters or bands of jobs. Thus, Mehtashould agree to reduce the organisationalhierarchy to four levels. Simultaneously, heshould persuade the collaborator to retainthe seven salary grades within the frameworkof the four levels.The condition about the reconfiguration

of the organisation structure, based on objec-I tive measures of work and performance,might lead to disorientation on the part ofold-timers. But, in the long-term interest ofBAI..,Mehta should take a detached view.The

....

fact that these senior managershave contributed to BAL'Sgrowthmeans that they are competent andshould, therefore, be given rolesthat match their competencies.

However, the condition regard-ing the 30 per cent reduction inmanpower seems premature.While agreeing to it in principle,Mehta should convince the collab-orator to decide on the number ofjobs to be reduced after the jobevaluation. He should ensure thatthe new HRDmanager considersredeployment in areas of expan-sion or designs a voluntary retire-ment scheme. This is in the long-term interests of BAL,and means takingemployees into confidence so as to pre-empta backlash. And since this is the job of a pro-fessional HRDmanager, it is another reasonwhy Mehta should hire such a person.

With regard to recruitment, Mehta shouldsuggest the appointment of professionals indifferent fields like costing, purchase, andquality. It is also necessary to find out thesuitability of existing people to move intoresponsible positions in tune with thechanged circumstances. Once Mehta mar-shals his ideas on the above lines and pre-sents it to Mounsignex, the latter will seemerit in his arguments. And that should pavethe way for a joint venture. 8

R.R. UKHITE. ..........GroupSeniorVP (HRD),Mafatlallndustries

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