Organizational Structure, Design, and Change

OB III | HR C | Primary Group 6

Ambar Jain H21127 | Dixit Dutta H21137 | Jatin Sharma H21143 | Meghna Puri H21147 |
Shashwat Krishna H21166 | Vaibhav Gupta H21176| Vanya Pandey H21177

Market Leader in VUCA World

1. Has the value creation stage of Maruti Suzuki has changed during 2011-21 period?
Explain.

A brief overview of MSIL as per the systems model would be –

 Organizational inputs – Steel, investment, etc
 Organizational conversion process – Production of cars in plants
 Organizational outputs – Petrol and diesel cars, premium range cars
Since value is created in these three stages, the organization’s environment can be ignored in
this case.

Before 2014 MSIL was mainly focused on acquiring new plants to increase capacity. This is
evident because they opened a third plant in Gujarat. They aimed to produce cars efficiently,
which consumers can buy. According to the system’s model, they created value in the
conversion process. But after the SMGPL plant comes into operation, MSIL will act as
distributors with cars manufactured by SMGPL as input. Also, they invested in a research and
development centre in Rohtak, which will provide information and knowledge as input. Hence
the value creation would now be at the input stage. In 2015, they launched a new product line
for the premium retail channel – Nexa. Also, in the later years, they are differentiating the
products based on diesel and petrol engines, and in 2020 they decided to discontinue diesel
cars. They are also producing lithium-ion batteries and other components for electric cars. This
means that they are creating the most value in the output stage.

From this, it can be concluded that the value creation stage of Maruti Suzuki has indeed
changed in the period 2011-21. First, they created value in the conversion stage, then in the
input stage, and lastly in the output stage.

2. How do you compare the environment of organizations such as Maruti Suzuki India
Limited (MSIL), Suzuki Motor Corporation (SMC) and Suzuki Motor Gujarat Pvt Ltd
(SMGPL)? Feel free to search for additional details in internet. Are they same and
what are the implications? Also compare the environment and emerging challenges
of multiple plants of Maruti Suzuki?

MSIL had a relatively younger workforce at Manesar who could be politically influenced more
easily. The plant at Gurgaon was getting congested, as the city was turning into a residential
area from an industrial location. MSIL also signed an agreement with the Gujarat government
for the Hansalpur plant.

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SMC shall produce vehicles for MSIL in the Gujarat plant and would accept returns on
investments only through MSIL’s growth and expansion. SMC, given it is the parent company
with wider access to the latest technology, shall also develop an integrated vehicle
manufacturing facility along with an automotive Li-ion battery manufacturing plant at
Hansalpur. 

Meanwhile, SMGPL, being a fully-owned subsidiary, shall only function as a manufacturing unit
and the profit generated by MSIL shall be equally shared by MSIL, SMC, and SMGPL. SMGPL had
raised concerns about Maruti Suzuki functioning as a shell company in the longer run. The
mutual fund houses, the 16 institutional investors, and minority investors were all sceptical of
the investments being done in SMGPL.

No, the environment at the three organizations was very different in nature with varying
challenges. While MSIL faced the issues of a stable workforce along with ramping up production
(target of manufacturing ~3mn vehicles by 2025), SMC had completely different expansion plans
- with their focus being on becoming a coming-of-age organization that had visionary targets.
SMGPL, on the other hand, had the challenge of developing trust in the investors through their
royalty plan. SMGPL, though compounded MSIL’s production capacity from 2018 onwards, it
had kept the mutual fund investors in the dark about its future, after the expiry of the 15-year
agreement with the Gujarat government.

According to a 2014 article published in the Business Standard, the new passenger car plant will
be built in the Mandal region of Gujarat by SMC, instead of MSIL. Simultaneously, LIC had
refused to side with the decision of other fund houses and it was supported by the General
Insurance Corporation of India, which had less than one percent share in MSIL. LIC, being an
age-old organization, might have placed trust in MSIL and SMGPL because of - one, the
narrowing gap in the prices of gasoline and diesel, and two, the expected transition of the Indian
automobile industry to Li-ion battery-powered or electrically powered vehicles.

3. How do you compare the stakeholder management issues reported in the case? Any
application of concepts such as inducement, contribution, coalition etc we discussed
in class already?

The following are stakeholder management issues in the case:

 The institutional investors believed that their investments in MSIL would not be fruitful as
the majority of the production was being shifted to an enlisted company. To handle this
issue MSIL put a cap on the investment in the new entity so that the entire operations are
not shifted. There was even voting for the minority shareholders regarding the change to
a two-company model. Even the majority was in favor of the change, more than 50% of
the votes were not cast, which could be perceived as a sign of disapproval.
 For a long time, MSIL had focused on cars with good mileage and quality of service. They
were yet to provide their customers with the premium model cars which they did by
launching the Nexa cars.
 There was employee unrest at the Manesar plant which was handled by MSIL. Also, MISL
declared that to reduce congestion from the Gurgaon plant, they will look for alternative
plants in Haryana itself so that the workers would not face problems.

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There was a coalition between the Gujarat State Government and MSIL regarding the new plant
which was being set up. The Government provided the location of the first plant site to the
company which would help in the development of the state and provides employment
opportunities. There was also a coalition between Toyota and MSIL which was creating
problems for MSIL.

Apart from this, MISL’s parent company SMC contributed by investing in setting up the Gujarat
plant in return for the profits which would be divided amongst the three entities- MISL, SMC,
and SMGPL. The central government also contributed to a certain extend by enhancing the ease
of doing business by making changes in the Company Law in return for higher revenues
generated by taxation.

4. Based on the case details, choose the year wherein in organization report maximum
effectiveness based on technical approach. Give reasons.

The technical approach evaluates an organization’s ability to convert skills and resources into
goods and services in the most efficient manner. Production line managers commonly use
indicators such as the number of goods produced, the number of defective products, or wasted
material to monitor the efficiency of all stages of the manufacturing process in the
manufacturing industry.

As per the details of the case, we see that Maruti Suzuki was most efficient during the year
2017-18. As per Exhibit 3, we see that the production level was the highest in comparison to the
other years, at a level of 1624487. It can be inferred that the resources at Maruti were deployed
over and above the planned capacity level of 1566800 to meet the Sales requirement of the
period.

From the information provided in Exhibit 1, we see that there was a consistent increase in the
market share. However, in FY17, due to the steps and measures taken, there was a jump by
approximately 3% which also signals towards the year 2017-18 being most effective.

As per additional details from the case, the Gujarat plant was to function from 2017 onwards
and roll out vehicles from early 2018 which reached fruition as we have data present in Exhibit 3
explaining the same. The period of 2017-18 played the role of a stepping stone while effectively
planning for the next stage for the organization.

5. Any applications for the concept of bounded rationality discussed in chapter 3.

Explain.

The environment is characterized by a lot of uncertainty and complexity. In this scenario,

organizations or people have a limited ability to process the information around them> Because
of this limitation or bounded rationality, it is challenging to manage transactions between
organizations. Environmental uncertainty and bounded rationality may make the cost of
negotiating, monitoring, and governing so high that organizations resort to more formal linkages

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mechanisms like strategic alliances, minority ownership, or even mergers – to lower transaction
costs.

In the present case, bounded rationality comes up in a couple of instances.

The first instance of bounded rationality arose when the chairman Mr. R.C. Bhargava was
enquired if Maruti was going to develop its diesel engines. In his defence, he cited the
uncertainty of the Government's long-term policy of diesel fuel pricing hindering Maruti's long-
term plans on developing diesel engines except for the 1.3-liter engine that they are currently
outsourcing from Fiat. The same was also confirmed by the MD of MSIL, Mr. Nakanishi. It is a
case of bounded rationality because there is much uncertainty in the market for diesel engines
in the absence of a clear policy. Suppose Maruti wants to capture the market for diesel cars as
they have for petrol cars. In that case, they need to align their business strategy as to the future
scenario for diesel cars, not what the current market is offering.

The second instance of bounded rationality is when Maruti decides to collaborate with Toyota
and cross badge their successful Nexa vehicle Baleno as Glanza. The thought process behind
why Maruti would do such a thing to one of its successful cars is not transparent. Nevertheless,
the rationale behind the move was not well thought out. Maybe because of the uncertainties in
the market at that time, they thought it would be an excellent strategy to collaborate with
Toyota, but as a result, because of the cross badging, the market share of MSIL significantly
declined.

6. Are you able to identify any moral hazard issues in this case? Whether the corporate
Governance system is working perfectly in this case?

A moral hazard issue observed in the case was the deal between Maruti Suzuki and its Japanese
parent for the proposed Gujarat project. The investors were afraid that the entire plan by SMC
for SMGPL was just a ploy to convert it into a shell company in the long run. Moreover, the deal
would lead to the fundamental activity of Maruti, which is core manufacturing, to be
outsourced, to a wholly-owned subsidiary of Suzuki on terms which were very on one hand very
unfavourable to MSIL, while favourable to the interests of Suzuki on the other.

As for corporate governance, the law does not seem to make it easy for the investors involved
to move the Company Law Board for a potential case of oppression or mismanagement. Since
they control less than 10% shareholding in MSIL and are a mere 16 in number as opposed to the
requisite 100 for Company Law to be activated here, they would have to resort to Section 188 of
the Companies Act 2013. However, even this isn’t of help for the investors as it has not been
notified yet nor are the regulations concerned unambiguous.