Sucheta Dalal :Rajiv Bajaj - A rare interview to MoneyLIFE
Sucheta Dalal

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Rajiv Bajaj - A rare interview to MoneyLIFE  

August 25, 2008

We were on the shop floor with T-shirts and jeans... building the bikes drawing by drawing, dimension by dimension, tolerance by tolerance

Rajiv Bajaj, 39, managing director of Bajaj Auto, has pulled off one of the most spectacular turnarounds in the Indian corporate history. Through superb engineering skills he crafted the first truly Indian high quality bike, Pulsar, that pulled back Bajaj Auto from the brink of disaster. Excerpts from an exhaustive and illuminating interview with Sucheta Dalal & Debashis Basu

ML: How did you start your career? You went to Warwick University, which has a famous course in engineering, led by Professor Kumar Bhattacharya. What was the real motivation?

Bajaj: Oh! Because I wanted to finish in a year and come back. The other reason was Professor Bhattacharya. But before that there is a bit of interesting history. I was in an engineering college during 1984-1988 in Pune. In 1984, TVS introduced a motorcycle. Joher, my best friend in school and college, wanted to buy a Chetak (a popular brand of scooters manufactured by Bajaj Auto). There was a 10-year waiting list for it. But I had the power and he the begging bowl. I spoke to my father who suggested a ‘Bajaj Super’ (another brand of scooters), saying it was the same thing. I insisted that Joher wants a Chetak. It was to be available in a few days. But Joher went and bought an IndSuzuki motorcycle. That was the first thing… my best friend, who was so desperate for a Chetak, suddenly bought a motorcycle. Anyway, everybody wanted a motorcycle in college. My career actually started from there -- awareness about motorcycles.

OK, now let me tell you the real story about why I went to Warwick. It was a one-year course. I had never been away from home; so one year was better than two. They had a huge campus with 17 bars on the campus. I said this is my kind of place. The third reason was that there were guys from TVS, from Bajaj, some from Calcutta - there were many Indians on the campus. The fourth was that they were allowing us to do engineering and management - the kind of mix that was not common in 1989-90. But no exams. I said this was great. I never wanted to do MBA.

ML: Why is that?

Bajaj: I didn’t see any relevance of the MBA to anything that Telco or Bajaj wanted to do or needed to do. I was reading a bit at that time and ‘just-in-time’ (JIT) was a new concept. I read the story of Soichiro Honda and how he started his enterprise at the age of 42 and quickly built it into such a fabulous company. Somehow, it just got into my head that the Germans and Japanese are good at what they do because they are all engineers -- not only by education but in their style of thinking. The MBA style is that there is more than one solution to every question and it needs discussion and then you never have enough data and then you make presentations… that used to go on in this room (board room) also. So I thought this MBA business is not for me. I even went to the Harvard Business School and sat in the class for a day. It was in complete contrast to what I experienced when I was in Japan and had started working with Kawasaki. At Harvard Business School, that’s not real life. Case studies are real life! My father and uncle had also been there (to Harvard); eventually my brother went there. But I decided to do something different -- I went to Warwick. Dr Bhattacharya was very nice; there were three guys from TVS Electronics and so I really enjoyed my time.

ML: Do you still believe that an MBA makes no sense?

Bajaj: The more work we try to do in Japan, Europe and back here, that idea gets reinforced. The big change in Bajaj is -- the big group of generalists that we got out of the way -- and that is really my contribution to the company. We just got good engineers up the ranks. The thing I really enjoyed at Warwick was that I read a lot. I practically have a whole library here and I have read and marked every book. When I came back, I found that there was so much I knew that was relevant. When I was at Telco (now Tata Motors), my head of the department, one Mr Padhye, asked me to arrange a visit to Bajaj, because Bajaj was a low-cost company and Telco was not. I organised the visit and later asked him about it. I thought he would say something really nice, but he said it was the same; there was nothing new, nothing different. At Warwick, we went to Massey Ferguson, went to the Honda plant at Swindon and met people from various places. That was a huge exposure to modern manufacturing and engineering.

After coming back, I found that every shop floor of ours was a disaster; every day, we were able to do something better. Then, I used to sit here in a room like this with my father with his whole team and someone would say that we should put another die in the process; it’s going to save half a man day. I would think to myself, this is too peripheral, it doesn’t make sense.

I started collecting graduate/diploma engineers from the shop floor and called it the SMS (streamlined manufacturing systems) group. I then started teaching them all that I had learned. After putting my notes together the whole day, I would try and lace it with examples from the shop floor. The first bunch had four graduate engineers. Within them, there was this complete upstart, an aggressive and a very intelligent fellow. He did everything right without going to Warwick. He was from the Regional Engineering College, Bhopal, and his name is Joe. Now he heads our R&D department.

That was my one and only experience of meeting a natural talent. It sometimes happens that you meet a guy like Joe and you instantly know he is special. A lot of what has happened in technology, quality, design, style, image, etc., Joe has done single-handedly. He is a natural because he can take such huge leaps and still always lands on his feet as if he had done it before in his past life. In a couple of year’s time, the SMS group had become 200 people strong.

ML: How did the rest of company, the top management react? Was there any resentment?

Bajaj: Nobody took us seriously. My father had tried to bring various consultants into the company. People had come and gone and I had seen all their reports. Even before they left the room, everybody’s mind was already working against everything that had been decided. The last people here were Coopers & Lybrand. Dr John Wallace, an Englishman, was leading that team. He was about 65 and was the only guy who could hold his own against the rest of the management. I had met him in England while studying.

In our meetings here, we would say: "we have a press shop with a capacity of 1,000 a day" and he would say, "Thousand? It can be 3,000 a day". The technical way is to go to press and make 2,000 at least. Luckily for us, we found Dr Wallace and sDr Wallace found us. It was like suddenly we had one guru and we were a bunch of willing learners bypassing everything in between. That’s where we started from. I would drag my father, the chairman, to the shop floor every time we shaved one minute off something. But once we got the momentum going, things changed completely. In 1990, we started at this plant and changed everything that did not have anything to do with the labour agreement. The only thing we couldn’t do was to get people to work faster.

ML: When did Dr Wallace start to work with you?

Bajaj: Dr Wallace had been coming since 1986, but was not able to do much. Bajaj Auto was still hiring people and adding equipment but had little productivity or quality to show. By 1991, we peaked at 900,000 vehicles and we had 23,000 people. But we were still doing well; we had 48% market share and, as my father said, it had only been rising when the Japanese came in. Nobody realised that there is a time lag to everything.

From 1991 to 1995, we basically did the simple and obvious things on the shop floor. There was no automation, robotics, CNC and electronics. It was simple stuff. The world had done it many years before, as I discovered later. I was sure even then, that the TVSs and Hero Hondas were not like us. But the comfort of having the Telcos, Kinetics, Tempos and Mahindras around meant that everybody said that we are all like this. Even Bharat Forge was like this at that time.

ML: Was TVS better?

Bajaj: Yes, 100%. They were way ahead in what they were doing on the shop floor; how their layouts were organised; how people’s roles were defined; who was responsible for quality, etc. Hero Hondo, Yamaha and TVS were joint ventures (JVs) and so the Japanese were sitting there from day one. It was a clean slate. There was no legacy. TVS had little mopeds earlier -- hardly a legacy. At least, there was no lack of humility. Here, we were a big company; 10-year waiting list, etc. But, of course, we always had a few good guys. There was a general manager BM Rao, a fantastic engineer. Each time the Kawasaki guys came and went, he would be sad. He would say, every time they come, we teach them what to do. That’s why we never learnt from Kawasaki. You know how the Japanese are. They are anyway not willing to tell you anything. And if you are happy to talk, they are happy to keep shut. They are getting their royalty -- they are not here to teach you. Once, when I was in Tokyo, I asked a senior Kawasaki manager (by that time the bottom had begun to fall off Bajaj), why the other Japanese JVs are doing well but not our arrangement? He said, "Who is at fault, the teacher or the student?" That sparked off a lot of change.

Anyway, up to 1995, Bajaj was doing OK. Scooters were still growing; motorcycles were not all that big and Honda had been around for 10 years. So, the initial fear had gone. I still remember a family gathering in Mumbai in 1985; just a year after my father had a heart attack. Kinetic Honda had just entered the market; my father and his brother-in-law were sitting and talking. I remember my aunt (my father’s sister) telling my mother "Rahul looks a bit tense after Honda has come into the market". By 1994, Kinetic Honda was half dead; Hero Honda was nowhere; TVS was struggling; LML was up and down. So we thought we were doing OK. By 1995, we realised we were getting quite efficient and manufacturing things well. But the problem was that people were not buying scooters.

That’s when we started looking at motorcycles. Initially, I lacked experience and listened to a lot of excuses. We first looked at dealerships. The standard argument was that the Bajaj dealers were so well taken care of and were selling thousands of scooters every month, so they don’t want to sell bikes. Then the excuse was marketing. That the Bajaj brand was a problem and people want Honda. Nobody asked them why Kinetic Honda didn’t work, if the Honda brand is so great. Then it came to advertising. They said, maybe we were not spending much. There used to be huge debates about all this here. We were from the manufacturing side. So we only listened. Then, it suddenly occurred to us that our problem is that we don’t have a product which will help us stand out. We’ve got a me-too product of poor quality. The killer mistake Bajaj had made was to fall for this backward area incentive nonsense at Aurangabad (and that’s why we are so careful about going to Pantnagar, Uttaranchal). This was a mistake which others did not make -- whether it was Hero Honda, TVS, Ford, GM, Maruti. Even if their plants were not in Delhi, Chennai and Bangalore, they are not far from the main city. They hire the best of the managers and engineers living there, and get them to move up and down. We were in the back of beyond.

ML: What was the problem with Aurangabad?

Bajaj: We went to Aurangabad in 1984. We had a long waiting period for scooters and had to ramp up capacity very fast. So, we probably picked up barbers, woodcutters, cobblers -- just about anybody from the streets of Aurangabad -- to be trained to assemble scooters. People, who had no industrial culture, no quality orientation, were putting together a technical product. But it was easy to do because the scooters were the1960’s design -- very simple, robust and proven over 30 years. We then built a second three-wheeler plant there which was equally successful. And then came the big mistake.

People think two-wheelers are two wheels. This was supposed to be a four-stroke motorcycle to take on Honda, Yamaha and Suzuki. Kawasaki was always in big bikes; they never had a small bike. They were designing a small 100cc motorcycle for the first time. It had no relevance to their market so they never manufactured it themselves. They were also not our JV partners, so they didn’t put their people here to teach our people how to do it. So it was just drawings getting transferred to our engineers and engineering was anyway full of clowns. On top of that, the engineers were sitting here and the plant was somewhere else. So you specify tolerances here, and somebody tries to make it somewhere else with the same old equipment and processes that were barely adequate to make a 1960’s scooter.

ML: Same equipment?

Bajaj: Same XLO machine tools and HMTs, not the same piece of equipment but the same family, same platform, same generation. Everything was wrong. Hero Honda’s motorcycle had a Rs80 a year warranty and Bajaj motorcycle had a Rs800 a year warranty. It was as simple as that. Obviously, nobody would buy the motorcycle. In the five years from 1995 to 2000, we started working on technology and product development. We said we will put together our strategy over three steps: First, we would do what is do-able. So, I took this four-stroke motorcycle, put a whole bunch of young guys on it and then told my father that I want to run the motorcycle business. We slashed the price drastically. That’s how the Boxer came out -- the re-done 4S Champion. We sold it at a loss initially. Naturally, it got a big response. We worked hard on quality because we knew that if we compromise on quality and sell half a million vehicles, we will never get a second chance. I remember we had a big meeting to review the situation. The meeting went off well and Ranjit (Ranjit Pandit of McKinsey) remarked "you finally have a foot in the door’ and then somebody said we are losing money on this. My father jumped, "What, we are losing money?" We were used to 10-year waiting period, etc. Ranjit said "Do you know what you are doing Rahul? You are putting Rs1,200 on the seat of that motorcycle and telling customers: Take this!" My father went red in the face. I said this is an investment we need to make now. You need to get visibility on the road. That’s the only way to start because we didn’t have anything on our side -- we didn’t have a product, we didn’t have a brand.

ML: All this -- strategy, pricing, positioning -- is MBA stuff... not engineering stuff…

Bajaj: It is not engineering or MBA, it is commonsense stuff. But to fix the commonsense, you need engineers around. You need people like us. We were on the shop floor in T-shirts and jeans -- there were no uniforms then -- we literally built the bikes drawing by drawing, dimension by dimension, tolerance by tolerance… the value of being 10 microns off, which is just 1/100th of a millimetre, is amazing. Naresh Trehan (a cardiac surgeon) knows that when he fixes a heart, why should we not know that when we fix a motorcycle? There is a feeling out there that a Tendulkar (cricketer) has to practise, Pandit Jasraj (Hindustani vocal artiste) has to practise, everybody else has to practise for perfection but a businessman does not have to practise. He can meet, present, talk, debate and run things. This is the problem and this is the difference at Kawasaki, at Honda.

ML: I was referring to the issue of pricing…

Bajaj: Of course, I agree. We knew we had to make money, but we had to fix the problem dimension by dimension. There was no strategy to fix it; so we first did what was do-able. We lost money, which was OK, because we had enough money from the three-wheeler and treasury portfolio. We started gaining scale, started absorbing the advertising cost with larger numbers, replacing local equipment. We didn’t realise then that we are still a me-too in the space already occupied by Hero Honda. The only 100cc motorcycle that will make money in India will be Hero Honda. We realised this in the last 4-5 years. We needed to do something different. We were always looking from the outside in, we had to do something ourselves. In the last one year, I have done yoga, studied the Gita and homeopathy. These are all inside-out approaches to life; it is about finding a centre inside. We quickly developed a dislike for benchmarking; we knew we were so far behind that benchmarking did not make sense. We had this great passion -- we wanted to build the sports motorcycle in India. We were discussing this in KEM Hospital. Joe’s wife was about to have a baby and writhing in pain and we were reading Asterix comics and debating whether we should do a 125cc bike or a 150cc one. And that is really how it happened. And then, after doing the do-able, we were going to do the unexpected. When people say that we have a Kawasaki bike, we would make our own bike. When they say we cannot make a 100cc bike, we are actually going to make a 200cc bike. When they say Bajaj can barely make a low-cost bike, we would make the most expensive bike. When they say we can barely make a reliable bike, we will make the fastest bike. People will not expect us to make a sporty, sexy, fast, sturdy and an expensive bike. This is how the Pulsar started.

ML: Which year was this?

Bajaj: This was some time between December 1998 and May 1999. Pulsar was launched in November 2001, in under three years, which was almost world class. Joe was 30 and had a bunch of guys who were 25. See the contrast. People vastly more experienced couldn’t translate a good Kawasaki drawing into a shop-floor component. And, for Pulsar, we were working with guys without any experience except some natural talent, a lot of dedication and enthusiasm wanting to do something all by themselves for the first time. It taught us many things. We got Dr Wallace in; we got our Executive Director, RA Jain, who retired last year (he is the only person from the old team), and then we got others, from Honda and elsewhere. These were tough guys. It was a funny combination. There was this bunch of oldies, with enormous experience, with solid engineering experience… and this bunch of young guys who wanted to learn. We actually found these guys one by one to work with us.

ML: How did you get your management, particularly your father, to buy into it?

Bajaj: He had little choice, because things were going so wrong. He was obviously smart enough to know that. If people tell him the problem is with the brand, the problem is with the dealer, he knew that was not the problem. He knew what the problem was, but was very unsure whether we would be able to solve it.

ML: He was probably aware of the huge risk…

Bajaj: Yes, it was a huge risk. He never stopped us. He seemed to trust us, but he would question the same thing 10 times and that would really piss us off sometimes. I realise that he was probably so nervous because he was aware of the chances he was taking. But also, beyond a point, he had no choice. He had tried everything. He had gone to Dr Bhattacharya for help; he had Kawasaki as a collaborator; he had a whole bunch of GMs and VPs hanging around; he had Rs4, 000 crore in the bank and 2,000 acres to sit on and he had a huge lead of 48% market share. He had everything and it was falling apart.

ML: So you didn’t have to fight for anything, the realisation was already there?

Bajaj: Oh no. I had to fight to change 4S to Boxer; I had to fight to put quality right; I had to fight to get rid of 600 suppliers, all of whom would approach my uncle and my father or some GM… I had to fight when I spoke about doing a VRS (voluntary retirement scheme). But there was no other way. You simply had to get down and do things. I learnt a lot from watching how things worked elsewhere. For example, I met Shoichiro Irimajiri, who set up Honda in the US, for breakfast. He was 71 and looked like he was up for four hours. I asked him to help me and he said: "I will, on one condition. You must promise to attempt to win the world 250 GP racing in three years". In 1954, when people barely knew computers, this guy had made a 6-cylinder bike with engine valves as small as watch parts in 9-10 months. That is the spirit of Honda. He once told me something beautiful; "We lose two out of three races we enter in, but we never lose our spirit". These are the kind of people who helped us put together Pulsar and grow it inside out.

ML: What were the changes in manufacturing you had to make for Pulsar?

Bajaj: We realised that Joe was about to make a great new product, but we needed a new work culture. I always say we worked with six gurus, and we had a TPM Guru, who was Prof Yamaguchi.

ML: Who were the six gurus?

Bajaj: There was Dr John Wallace, RA Jain, Irimajiri-San, Prof Yamaguchi-San, the late Paul Hoff -- he was in Harvard with my father. He didn’t know anything about engineering but he told my father, "I don’t know what they are doing but they are rescuing the company". Coming back to my meeting with Prof Yamaguchi, I met him at Sun-n-Sand (Hotel) Pune in the evening. He was a tough guy. I offered a warm handshake and a big smile. This guy who was going to be our consultant from the next day says, "Why are you smiling? Business no good, why you smiling". After we talked the whole evening, he tells me he had two offers -- working with TVS or Bajaj and he says "from the outside, it looks like Bajaj is more needing me".

He asked me what my job was. I told him: I am Vice-president, Products. He says, "No, not your designation. What is your job?" I said Product Development is my job. He says, "Not function, what is your job?" I said: making new products is my job. He says, "You designer"? I said, no. Then he asks, "Marketing is your job?" I said I oversee marketing. So he says, "Do you sell"? It went on like that. He would ask, "Do you design?" No. "Are you a test driver?" No. Finally, he says, "You are manager, nai?" He said: "improvement is your job" and I never forgot that. He taught me that you fellows are anyway overrated and you don’t contribute directly to the job. So what you can do is not to work in the system but to work on the system so that improvement is a way of life. That is the job.

Next day, when he meets me at lunch, he asks me again, what is your job? I said improvement is my job. He immediately asks, "What is your action? Why have you not thought of any action since last night?" These Japanese are very driven and hard-nosed. That is about the time I wanted to set up the Chakan plant.

I needed a plant where everybody knows that improvement is his job, irrespective of what he is doing. Pradeep Shrivastava was an engineer in Bajaj and lost in some corner. He set up the assembly line, product development, product engineering, tool engineering. Just as Joe decided that he would design a great bike, Pradeep decided to show us how to set up a plant that is different. And that was like the mother of all disagreements with the old management. Why do we need another plant; we already have too much space, too much staff; it is the wrong time to invest and so on. At one end, we were letting off people and at the other end we wanted to hire. We wanted a small plant, a cute plant, all in one shed where everything is compact, efficient, everybody is either an ITI or a diploma-holder or an engineer. We didn’t want any workmen or unions. Nobody was willing to buy it. But it is almost 10 years now and everybody works like an engineer; everybody has a job; everybody has to improve. It’s a plant that runs by itself. But my father disagreed then and I thought: OK, if you don’t allow me this, I will quit. Because I not only need a good product I also need a good place to make it.

ML: Was the prototype done by then?

Bajaj: Yes, the prototype was done by then but we needed a facility to make it. That was the cornerstone of our change.

ML: Was it cheaper to work in a new facility?

Bajaj: Yes, because all the inefficiency would not be there. But we learnt very quickly that the cost of manufacturing was important but not from the quality point of view. Even today, our 100cc portfolio doesn’t make money. Profits come from Pulsar, our three-wheelers, our exports and non-operating income. We will probably make more money selling our scrap than selling 100cc bikes. This shows up in a company like TVS because they don’t have all these revenue streams. That is the cost of being late, the cost of having pushed the product instead of having the pull. Pulsar to us is like Splendour is to Hero Honda and Scooty is to TVS.

ML: So, how did Chakan happen?

Bajaj: The years 1999-2002 were really difficult for us, though our quality was better. Our dealers were restless because scooters were not selling and motorcycles were not really picking up. People still wanted to buy Hero Honda; our vendors were falling apart; the VRS process had started; the stock price was down to Rs200 and the family dispute with Shishir Bajaj was out in the open. But somehow dad relented on the Chakan plant. That was in 1999. After 2000-2001, when quality, productivity, product development on shop floor had fallen into place, we realised that the marketing was weak. That is when I met Meenakshi Madhvani for the first time.

ML: Where did your brother fit in to all this?

Bajaj: I joined in December 1990. Sanjiv did Harvard Business School. He is three years younger. He joined three years later, in 1993, but he knew he was going to go away. He left for Boston in 1995.

ML: Did he support you in your fight to change things?

Bajaj: Not really. He was too much of a management type. And both my uncle and my brother would often align with my father… but in a passive way. It is just that in an argument, you cannot prove these things and my father is really good at arguing; he has a personality; he has a voice; then he has choice of words; then he has a temper.

ML: That is precisely the point. How did you convince him?

Bajaj: In the end, all that happened was he didn’t sack us, that’s all. I don’t think we ever convinced him about everything.

ML: Which means that if you weren’t your father’s son, the rest of your team could not have convinced the management?

Bajaj: Absolutely. They would have been gone! Joe had a job and I almost lost him. Now it’s wonderful… with Joe in R&D, Pradeep in engineering, Srini in human resources, Ravi in business development, Kevin in finance, Sridhar in marketing. We were 10 of us including Ravichandran. Now, the whole team is so much in sync that no sooner I finish a sentence Joe, knows what I am talking about; before Joe finishes a sentence, I know what he has to say. The chemistry is fantastic. Earlier, Joe was offered a job in Canada and Pradeep was almost recruited by Escorts. I mean if I had lost Joe and Pradeep, I would have lost the company; there is no doubt about it.

ML: Surely, there were some mistakes?

Bajaj: Oh! We have lost so many products along the way. We have made so many mistakes… we bought so much wrong stuff. Today, we have Asia’s first two-wheeler crank shaft automated robotised line but, before we did that, we built our own robots. Till Meenakshi taught us how to do things smarter, we sent a lot of money down the drain on advertising. Fortunately, the company was big enough to absorb it. The mistakes were visible and that’s what made everybody, including my father, so nervous. In 2000 or 2001, our entire two-wheeler portfolio lost money, only three-wheelers and non-operating businesses made some money. So we went right to the edge and came back from there.

ML: What next? Where do you go from here?

Bajaj: We have found our centre and will now to expand from there. We are working on bigger bikes. We can also think in terms of off-road products, jet skis, and outboard motors -- there are just so many segments that require the same set of skills.

ML: How do you create excellence?

Bajaj: By innovation and execution. Excellences comes only when what you do is innovative -- in marketing terms -- and execute it well. If there is no innovation, but only the ability to execute perfectly, you can’t create differentiation. If you can’t create differentiation, how do you stand for something? How do you make money? BMW’s identity does not come from its slogan: the Ultimate Driving Machine. It is the components of the car that make it behave the way it does.

ML: How do you innovate? How do you do things differently?

Bajaj: First, by not playing on somebody else’s rules. Honda’s rules of the game were -- 100cc bike, 80km a litre, 7.5 horse power, Rs40,000 and a one-year warranty; so you have to change that. That is what marketing segmentation is all about. In this business, you have to translate that into technical terms.

We want to do the same thing in the four-wheeler space but can we take our knowledge, technical skills, manufacturing processes and suppliers’ strength in cost, quality, structure and create a four-wheeler with an entirely different set of rules? That is the only way to do things differently. It can’t be an auto rickshaw with a fourth wheel. It has to be leveraging our existing strengths. We will start with a cargo vehicle, but let’s see what happens next. Our dream is to surprise the market by January 2008. Today, I am confident of quality. When I travel from Sao Paulo to Jakarta, I can see that our products are at par with the best in the world. The recipe is right; now it is the question of exploiting market opportunities and getting the product mix right etc.

-- Sucheta Dalal