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Building World Class Competence TATA Motors 21 April 2006

Building World Class Competence TATA Motors 21 April 2006. Contents. Overview Building World Class Competence Results. TATA Motors. Strong Domestic Position. Robust Financial performance. India’s largest Automobile company. Market leader in Commercial Vehicles

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Building World Class Competence TATA Motors 21 April 2006

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  1. Building World Class Competence TATA Motors 21 April 2006

  2. Contents • Overview • Building World Class Competence • Results

  3. TATA Motors Strong Domestic Position Robust Financial performance India’s largest Automobile company • Market leader in Commercial Vehicles • in domestic market with ~60% MS • 2nd largest player in Passenger Cars in • domestic market with 16.5% MS • Nation wide Sales, Service, Spare parts • and Auto financing network with over • 1,200 customer touch points • Sales 400,000 vehicles • Revenues USD 4.7 Bn • Profit USD 0.3 Bn • (Post Tax) • (All figures are for FY 04-05) • 2nd largest company in Private sector • Globally ranked as:- • 2nd largest Bus manufacturer • 5th largest Bus & Truck manufacturer • Largest Indian Exporter of Automobiles • Largest portfolio of products by an • Auto major:- • Mini, Light & Heavy Trucks • Range of Buses & Coaches • Passenger Cars & Utility Vehicles • Indigenously developed & India’s 1st • Light Commercial Vehicle (1986) • Sports Utility Vehicle (1998) • Passenger Car (1998) • Mini Truck – ACE (2005) • Largest R&D network in India with • offshore centers in :- • Korea (Gunsan) • Spain (Zaragoza) • UK (Midlands) • 1stEngineering company to be listed • on NYSE (2004)

  4. 4.7 Evolution of TATA Motors: Liberalization brings greater opportunity & challenges Economy opening Liberalization Protected Economy USD Bn Entry of MNC players Developed suppliers Product complexity Protected environment Less developed supplier base Limited domestic competition Collaboration with Daimler Benz New Strategy Cyclical impact Self Reliance 1st vehicle rolled out within 6 months of contract (1954) Vertical Integration Very little outsourcing Focused Vendor Dev Increase in Outsourcing Outsourcing Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 USD 2.3Bn L O C O M O T I V E S USD 0.7Bn USD 35.9Mn USD 0.05Bn USD 0.2Bn 0.3 USD 1.8Mn -0.1 04-05

  5. Cyclic nature of Commercial Vehicle Industry required de-risking of Company’s business model Domestic CV Industry Sales CAGR: 6% Indian CV Industry Characteristics Similar with Global CV Industry • Cyclical • Low Volume (in ,000s) Dis-similar to Global CV Industry • Secular long term growth trend • Early stage of road development

  6. Increasing intensity of competition required building World Class competencies Competition in LCV Market All Models Indian 59 58 52 48 37 Competition in Passenger Car Market 42 All Models 36 Foreign 12 22 Indian 24

  7. Contents • Overview • Building World Class Competence • Results

  8. Building World Class Competence • Offsetting cyclicality & de-risking business model • Increasing Competitiveness

  9. 1. Offsetting cyclicality & de-risking business model a. Entering new segments & increasing presence in less cyclical segments TML Passenger Car Market Share • Personal transportation - Passenger Car 16.9% 16.5% 14.7% 10.7% • Size of Zen • Interior space of an Ambassador • Economy of a Maruti 800 6.8% 98-99 00-01 02-03 04-05 05-06 Bus Industry growth 50,300 45,500 43,500 35,300 • Fully Built Buses & Coaches Small Buses • Controlled market • Less fluctuation in sales • Explosive growth projected in demand due to improvement in road infrastructure 22,300 Large Buses

  10. 2. Increasing Competitiveness Being competitive with International competition in domestic & International markets TATA Motors International Players Reduce Technology & Quality Gap Maintain Maintain Cost Gap Reduce TATA Motors Competitive Advantage:- Providing vehicles with Highest Life-cycle Profitability to customers

  11. Building World Class Competence • Offsetting cyclicality & de-risking business model • Increasing Competitiveness • Product Development • Supply Chain • Marketing & Sales • International Business • Human Resources • Performance Systems

  12. Towards building World Class Competencies 1. Product Development A. Passenger Car Marina Indica Indigo + $0.55 Bn Generation 1 Generation 2 TML Market Share In B & C segments $1.1Bn Indigo: 33% (#1) Indica: 19.5%(#2) (behind Alto) Our 1st generation cars (Indica & Indigo) are competing with competitions’ 5th or 6th generation cars & are helping Company to gain Market Share in Car segment

  13. Towards building World Class Competencies 1. Product Development B. Introduction of India’s first Mini Truck – TATA ACE for last mile distribution BeginningMay’05, ACE sales have grown to 50,000 nos (annualised) Impact of ACE on 3 Wheeler Sales Pkups ACE L3W S3W

  14. Towards building World Class Competencies 1. Product Development C. Moving from ‘Developing Products’ to ‘Managing Product Development’ Engg Research Centre Pune, Jsr, Lko TATA Technologies INCAT, UK Management of Product Development needs of TML In house Product Development Aggregate Suppliers TATA Daewoo Korea Outsourcing Partners Hispano Carrocera Spain Bus Body Building ACGL - Goa TML-European Tech Centre, UK • Product Life-cycle Management (PLM) system for effective product data management & analysis • Institutionalizing New Product Introduction (NPI) Process across the organization • Incorporating ‘Voice Of Customer’ – for meeting Customer expectations • Advanced Computer Aided Design (CAD) Environment for product design, virtual testing & validations for reducing development time and enhance effectiveness

  15. Building World Class Competence • Offsetting cyclicality & de-risking business model • Increasing Competitiveness • Product Development • Supply Chain • Marketing & Sales • International Business • Human Resources • Performance Systems

  16. Towards building World Class Competencies 2. Supply Chain A. Manufacturing – Lean manufacturing, improvement in Quality & Productivity • Lean Manufacturing • Single Piece flow • Flexibility & Scalability • Centre of Excellence (CX) • SMED (Single Minute Exchange of Dies) • JIT supplies / KANBAN • KAIZEN / Poke-Yoke Increasein Productivity (EquivalentVeh /Man/yr) 2.2 X • Improvement in Quality • Design Quality • Build Quality • Special emphasis on Visual Quality & Performance parameters X 00-01 05-06 • Enhancing People Capability • Multi Skilling & Multi Tasking • Small Working Groups • Advanced & focused training • Modernization of facilities

  17. Towards building World Class Competencies 2. Supply Chain B. Outsourcing & Global Sourcing 1950 - 1990 2000 & beyond • Controlled economy • Protected environment • Less developed supplier base • Limited domestic competition • Open economy • Entry of International players • Developed supplier base • Product complexity 1. Outsourcing 82% 75% Highly Vertically integrated company 60% 57% Outsourcing content 2005 ACE 1990 2000 2005 M&HCVs 2. Global Sourcing : Steel, various aggregates & other components

  18. Towards building World Class Competencies 2. Supply Chain C. Vendor Management 1. Source Selection 2. Development 3. Management 4. Partnering • Past performance • Managerial capability • Technology • Knowledge • Process development • Quality • Capacity rate • Training • 2 way communication • Change adoption • New Technology • New business • Rating performance • Improvement • Relationship building • Rationalization • Features • Early involvement of Vendors in product design & development • Focus on ‘overall least cost’ • Self Certification of Vendors • e-Commerce/ e-auctions & other IT tools (PLM , SRM)

  19. Towards building World Class Competencies Leading to reduction in Break Even Point BEP was brought down to 1/3rd of capacity by:- TML’s BEP as % of Capacity • Direct Material Cost Reduction • Variable Conversion Cost Reduction • e-Sourcing – Largest e-Sourcing company & • among Benchmark companies in • Auto Industry • Alternate Sourcing / materials • Benchmarking, tear down & design changes • Negative working capital – Unique distinction for an • Engineering Company Lowering of BEP has prepared the Company to withstand severe demand fluctuations

  20. Building World Class Competence • Offsetting cyclicality & de-risking business model • Increasing Competitiveness • Product Development • Supply Chain • Marketing & Sales • International Business • Human Resources • Performance Systems

  21. Towards building World Class Competencies 3. Marketing & Sales A. New Customer Segmentation approach - To develop products as per target customer requirements Example: Pickup Customer Segments India Today India Tomorrow A B C D

  22. Towards building World Class Competencies 3. Marketing & Sales B. New Sales Planning Process Inquiry Stage 1 Stage 2 Sale • Non uniform Sales processes at various dealerships • Sales process Benchmarking • Addressing gaps / modified Sales process / Standardization • Embedding Sales process in IT enabled CRM system • CRM data analysis for sales trends & sales process improvements • Largest deployment of CRM (Siebel) system world wide in Auto Industry covering all TATA Motors Dealerships & Workshops

  23. Towards building World Class Competencies 3. Marketing & Sales C. TATA Motors Corporate Identity Program Uniform TATA Motors identity

  24. Towards building World Class Competencies In FY 05-06, TATA Motors achieved all time high domestic sale of > 400,000 vehicles TATA Motors Sales CV Market Share ~ 60% (# 1 ) Car Market Share ~ 17% (# 2 ) Cars (47%) Cars* (17%) CV Market Share – 51% Car Market Share – 0% CVs(53%) CVs(83%) CVs (100%) * Sumo, Sierra, Estate, Pickup

  25. Building World Class Competence • Offsetting cyclicality & de-risking business model • Increasing Competitiveness • Product Development • Supply Chain • Marketing & Sales • International Business • Human Resources • Performance Systems

  26. Towards building World Class Competencies 4. International Business A. De-risking business from cyclicality of Domestic market Strategic importance of International Business • Products meeting Global Standards • Entry of Global Players in India • World Class Road network • International Emission & Safety norms CAGR: 6% • 2. To offset domestic cyclicality effect • Greater share of IB can dampen the • effect of cyclicality in domestic market • 3. Economies of Scale • For advanced products, IB markets • provide economies of scale • 4. Accelerate Growth • Growth opportunities in • International markets Domestic leadership image to be leveraged effectively for building relationships in global markets

  27. Towards building World Class Competencies 4. International Business B. Organic Growth Market Attractiveness & Potential High Low • South Africa • South Korea • Sri Lanka • UK • Italy • Bangladesh • Nepal • Saudi Arabia • Ukraine • Malaysia • & others… 1 Regulatory Environment Emission, Safety, Entry regulations 2 TML’s ability to address markets Based on Stage of Market development 3 • Product offerings were developed/ customized as per market requirements • e.g. South African market required vehicles with • Higher Power to Weight ratio as roads are highly developed • Cyclicality of these markets was out of phase with the Indian market

  28. Towards building World Class Competencies 4. International Business B. Organic Growth – TATA Motors I B Sales 50,500 35 5.3 times 30,500 40 9,500 45 No of countries Today, entire range of automobiles from Mini Truck to Heavy Trucks to Buses to Passenger Cars under TATA Motors Brand is exported to 35 countries

  29. Towards building World Class Competencies 4. International Business C. Inorganic Growth – TML acquired Daewoo Korea in Mar’04 • Addition to Topline • Enhanced Product portfolio • Growth in South Korea • Managing business in a developed country • Operating high quality manufacturing plant • Lead change in domestic market Complementary Product Range TATA Novus was launched in India in Dec’05 TML range b HP a HP Medium Truck was launched in Korea in Dec’05 Daewoo range c HP b HP

  30. Towards building World Class Competencies 4. International Business C. Inorganic Growth – Daewoo acquisition provided us with valuable learning to initiate Brand building in Korea (even before the acquisition happened) • Be prepared for being evaluated • Entire Daewoo team was closely monitoring TML team’s • work practices & behavioral traits • Collect first hand knowledge from market & customers • Interactions with customers & local transport associations • Customer reaction… “No existing Company management • has bothered to ask me how I feel or what I want…and • here you are doing so even before taking over the business…” • Focus on human integration & communication • Overcoming the language barrier • India considered low on technology TATA Motors Brand Building

  31. Towards building World Class Competencies 4. International Business C. Inorganic Growth – Evolution of Cross Cultural partnership with Daewoo Synergizing • Sharing of best • practices • Work Ethics • Corporate Governance Harmonization • Fine tuning • Music, movies, food, .. • Sister City Concept Familiarization • Cultural familiarity • Country visits Initiation • Basic understanding • Language familiarity

  32. Towards building World Class Competencies 4. International Business C. Inorganic Growth – TATA Motors in Korea Synergy of key attributes for making a Global Company Good Corporate Governance Cost effectiveness Strong Engineering base Work Ethics Quality Productivity • Tata Motors, India • Integrity • Understanding • Excellence • Unity • Responsibility • Big • Modern • Reliable DWCV, Korea

  33. Towards building World Class Competencies 4. International Business C. Inorganic Growth – TATA Daewoo brand received very well in Korean market

  34. Towards building World Class Competencies 4. International Business C. Inorganic Growth – Increase in TDCV Revenue & Market Share TDCV Revenue TDCV Market Share in Korea TML 1.5X 1.2X X FY03-04 FY 04-05 FY 05-06 Heavy Trucks TDCV Sales (Nos) DWCV Acquisition TML 13.5% Medium Trucks 1.3X X X Introduced in Jan’06 Exports FY03-04 FY 04-05 FY 05-06

  35. Towards building World Class Competencies 4. International Business C. Inorganic Growth – Learning from Daewoo helped in our 2nd acquisition - Hispano Hispano buses Sales (Nos) 3.5X TML X Q1 Q1 Q2 Q3 Q4 4X Revenue X Q1 Q1 Q2 Q3 Q4

  36. Towards building World Class Competencies 4. International Business TATA Motors International Business template To be seen as a local Company in the country of operation • As a South Korean Company in South Korea • As a South African Company in South Africa • As a Spanish Company in Spain • Brand ‘Japan’ - Electronics, High Tech, Innovative, Efficient, Trendy, Process oriented • Brand ‘Germany’ - Automobiles, Engineering excellence, robust design, heavy duty, meticulous • Brand ‘India’ - ?

  37. Building World Class Competence • Offsetting cyclicality & de-risking business model • Increasing Competitiveness • Product Development • Supply Chain • Marketing & Sales • International Business • Human Resources • Performance Systems

  38. Towards building World Class Competencies 5. Human Resource 1. Right People AwardedIndia’s Best Employer 2004 • Customer focus • Quality focus • Cost focus • Innovation • Agility 2. Challenging assignments / International exposure 3. Meritocracy 4. Changes in Organizational Structure Cross Functional Team Cross Functional Team Cross Functional Team Hierarchical Organizational Structure

  39. Building World Class Competence • Offsetting cyclicality & de-risking business model • Increasing Competitiveness • Product Development • Supply Chain • Marketing & Sales • International Business • Human Resources • Performance Systems

  40. Towards building World Class Competencies 6. World Class Performance Systems • Tata Business Excellence Model (TBEM) • Leadership • Strategic Planning • Customer & Market Focus • Information, analysis & KM • Human resource focus • Process management • Business Results • Balanced Score Card • Financial & Business perspective • Customer perspective • Process perspective • Learning & Growth perspective Awards & Recognitions • JRD QV TBEM Award for 2004-05 • CII-EXIM Bank Award for Business Excellence for 2004-05 • ‘Hall of Fame’ for 2003 for effective deployment of BSC • 2 Case studies published in ‘HBS Review’ on BSC deployment at Tata Motors

  41. Contents • Overview • Building World Class Competence • Results

  42. Business Results 1. Negative Net Working Capital (Days of Sale) 2. Low Debt/Equity Ratio

  43. Business Results 454,300 (’05-06) TML Turnover (USD Bn) TML Sales 400,000 220,000 170,000 Ford 13.4 GM 11.6 TML 7.9 (NYSE 19 Apr’06) TML Market Capitalization (USD Bn) TML PBT (USD Bn) & EBIDTA Margin (%) TML 13.3% 12.7% 0.3 TML 8.1(#1) Maruti 5.7 M&M 3.3 ALL 1.1 (BSE 31 Mar’06) 3.9 7.2% 0.1 0.9 Mar’04 Mar’06 Mar’02 (0.1) EBIDTA (%) 1 USD = Rs 44

  44. Thank You

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