C02 Vuca

Group C02- Market Leader in VUCA World
1. Has the value creation stage of Maruti Suzuki has changed during 2011-21 period? Explain
Maruti focused on maximizing their creation of value through changing their approach in multiple value
creation stages at the same point of time. During the 2011-13 period, identifying the need for Maruti to
focus more towards diesel engine vehicles, they not only augmented their diesel engine production
capacity from 2.4 lakh units to 3 lakhs, which indicates input stage value creation, but also pushed Suzuki
for development of a new smaller diesel engine which points towards their focus on conversion stage.
During this period, they decided to increase capacity at their Manesar plant to compensate for the planned
reduction in capacity at Gurgaon plant due to congestion reasons along with a third plant planned in
August 2013, while also investing in Gujarat for enhancing future capacity capabilities, which indicates a
high input conversion stage orientation. They were developing diesel engines for two of their biggest selling
petrol engine cars (Alto and Wagon R) as part of their conversion value creation stage strategy.
In 2014, they tried to transition Maruti towards the output stage of value creation through the
announcement of creating a new entity that would mainly be responsible for the manufacturing while MSIL
would be taking care of the marketing and dealer network expansion and essentially outsourcing their
manufacturing activities.
In the year 2015, in order to give Maruti an image makeover of sorts, they launched their premium
segment products under the aegis of Nexa retail channel to attract a new genre of carbuyers. For non-nexa
models, they opened Arena outlets that provided a modernized and digitised buying experience to the
customers that is indicative of a Output stage of value creation.
Maruti outperformed industry growth for 6 consecutive years in financial year 2018 and seeing an
upwards trend in the vehicles sales over the years planned towards expanding their assembly lines at the
Gujarat facility by adding two more lines to the existing one over the course of 2 years by 2020 which
indicates towards a conversion value creation stage in the company.
Post 2020, they even planned on setting up a new plant in South India, in line with their next stage of
expansion phase which again shows their emphasis on input value creation stage.
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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 the same and what are the implications? Also compare the
environment and emerging challenges of multiple plants of Maruti Suzuki?
First we compare the Specific environments of the three entities MSIL, SMC and SMGPL.
MSIL SMC SMGPL

Customers 1.Average Indian 1.Population in Supplier of
middle-class various countries automobiles to MSIL
population demanding 2 for their sale in the
2.New youth wheelers Indian market
population 2.Population in
demanding various countries
advanced features demanding 4
wheelers.
Distributors Nexa and Arena -- Supplies to MSIL
Distributors
Competitors Toyota, Tata, Honda Toyota, Tata, Honda Toyota, Tata, Honda
Government 1. Central 1. Central State Government
government of Government of of Gujarat for the
India: National India: National manufacturing plant
Policies policies related to and to regulate the
2.State government foreign investments. foreign investment
of Haryana: 2. Japanese along with the
Manesar and Government: Central government
Gurgaon Plant Regulations over the
3.Other State company.
Governments:
Distribution
Channels
Suppliers Fiat, and other Local -- Fiat, and other Local
vendors vendors
Unions Strong presence of -- No such strong
unions, especially in Union presence
the Manesar plant. recorded yet
Presence of a young
population in such
Unions, which are
influenced by
political forces.
The Specific environmental for MSIL, SMC and SMGPL are different when looked on the basis of different
factors. For example MSIL has to make its decisions keeping in mind the union situations in the sensitive
Manesar plant. Whereas SMC and SMGPL have not experienced such situation while their decision making
in the setting up of the Gujarat plant yet. Similarly, SMC has to consider the regulations set by the Japanese
government while carrying out its transactions along with looking after the policies set by the Central
Government of India and the State Government of Gujarat. While MSIL has to carry out its work keeping in
mind the national and state policies of India.
The General environment is based on Demographics, cultural change and International forces and it affects
the 3 bodies in an indirect manner. For example, the changing demand of India’s youth population requires
action by not just MSIL but also from SMC and hence SMGPL. The shutting down of diesel car production
due to incompatibility with BS-VI engines indirectly affected all three bodies.
The environment of the three manufacturing plants can be described on the basis of the factors of the
governments involved, the controlling body and the effect of Unions.
Gurgaon Manesar Gujarat

Government State Government State Government State Government
of Haryana of Haryana of Gujarat
Unions Harmonious relation Strong union No effects of Unions
with the Union presence with the seen yet
resulting in smooth members being
functioning of plant. easily influenced by
political forces
Controlling body MSIL MSIL Suzuki Motors
Challenges Faced at the plant

Manesar and Gurgaon Plant
 Fulfilling Production capacity: Fulfilling capacity goals and utilizing the plant is a challenge due to a
dynamic demand.
 Industrial Stability: Specifically, for the Manesar plant, maintaining Industrial stability in a dynamic
union susceptible to external forces would be a challenge.
Gujarat Plant
 Ensuring that the Minority stakeholders do not go against the decision of setting up the plant.
 Getting through the complex network of taxation and royalty payments would be a challenge.
 Reaching production utilization would be a challenge because it has to be ensured that the other
two plants are fully utilized first before the production at this plant.
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 below stated Stakeholder Management Matrix will encompass the major stakeholders at play for MISL,
their contributions to MSIL and the inducements behind it.
Type
Type of
Stakeholde of Contributions to Induce
Stakeho
rs Coaliti Organization ments
lder
ons
INSIDE
Existin
FII Core Capital, economic boost A
g
Mutual Existin Slight resistance to the new
Core B
Fund g unit
R&D centre to aid
innovation, Increased
profits with the new unit,
Domin
SMC Core utilisation of MSIL’s network C
ant
to market SMGPL’s
products, Rent charge from
SMGPL
Rent charge to MSIL,
distribution margins,
Potenti
SMGPL Core Increased profit to MISL, D
al
just enough mark up to help
it grow
Established SMGPL, R&D
BoD/Mana Domin centre at Rohtak and aim to
Core E
gement ant move towards battery
manufacture
Shareholde Oppon Approved the proposal with
rs including ent close to 50% votes casted
Core F
Institutiona -->Pote while others stayed out,
lized ntial listening to Mr. Bhargava
Labour Oppon Deteriorating Industrial
Fringe G
(Manesar) ent Relations, labour unrest
OUTSIDE G
Fuel Pricing, Companies
Govt/ Fin. Act’13- RTP, Governance for
Core Neutral H
Minister tax collection, promoting
Japanese Investment
Auto Existin Auto Infrastructure and
Core I
Industry g Employment
Increased Diesel price ->
Consumer Fringe - Reduced Demand for Diesel J
cars
Utilisation of each other’s
distribution channel,
Suzuki Potenti
Fringe technology, and consumer K
Group Co. al
network to increase sales
and profits
Compliance with
SEBI Core Neutral Companies Act’13 and L
corporate governance
Existin
Vendors Core High quality components M
g
Tech advancements, price
Competitor Oppon differential, better
Core N
s ent quality/reach, heavy
marketing etc.
Other Stakeholders might be OPEC, Share Market, Environmental Preserving NGO, Oil stations, R&D Centre
etc.
Footnotes
A. Countries like the US and England are aiming to tighten liquidity, strengthen their currency. India
becomes a great opportunity for the foreign investors.
B. Concerned about the future of SMGPL after the tenure of 15 year expires.
C. Expansion in the Indian Market, exploiting the already build up market by Maruti, Increased Revenue,
deviation from the raucous in the Manesar Plant by setting up a plant/centre in Gujrat, Increased Royalty,
localising and outsourcing vehicle components.
D. SMGPL, being an unlisted entity, portrays an opaque image with the investors- they are concerned that
the actual costs will not be disclosed and MISL will end making pennies on the dollar, making MISL a shell
company. Besides outsourcing will degrade the quality of Maruti’s product, that it’s known for. Additionally,
they questioned the high rate of royalty charged by SMC.
E. Fully owned subsidiary to increase the overall profitability of the organization while also benefitting the
expansion of MISL in India.
F. Not let the diesel pricing by govt affect their profitability in the long run and direct their manufacturing
trend, creating synergies by collaborating with the companies within the group, cost optimisation in the
long run, growth and expansion in Indian Market, prompt response to consumer demand.
G. Due to lack of harmonious work culture, a product of easily swayed workforce and young blood.
H. Avoid any complications in the tax collection later in the years due to the setting up SMGPL; Revival of
the economy through investment as well; ease of doing business.
I. To contain the fall of auto industry and keep it ahead in line towards growth, ultimately shaping the
country’s economy through increased GDP.
J. Consumers want products at cheaper rate and better quality. They are also demanding a unique and
diverse experience as the new generation emerges.
K. Creating synergies with the group will provide better and profitable opportunities to capture larger
capital and consumer market while also delivering profits to the shareholders.
L. To avoid any unfair practices with the minority shareholders of the company, the amendment and special
resolution by SEBI was put in place.
M. Revenue from the outsourcing of the MISL’s end product’s components.
N. Aim to sell higher number of units than the MISL, increasing market share, increasing reach in the
consumer market, raising more money for expansion, taking over the opponent.
4. Based on the case details, choose the year wherein in organization report maximum effectiveness
based on technical approach. Give reasons.
The technical approach to measure effectiveness corresponds to how efficient the organization is. It
measures the organizations' capability to derive maximum output from fixed organizational inputs.
To map out the year where MSIL reported maximum effectiveness, we computed the inventory and
the utilization of their production capacity. We believe during the year 2017-2018 they exhibited maximum
effectiveness as not only did they achieve full utilization, but they were able to surpass it and reduce their
closing inventory by a great extent, as their sales went over and above their production for the year, which
is evidence to the fact that they were able to clear out their inventory to an extent as well. 2017 happens to
be the year that MSIL had to start operations in the SMGPL plant.
However, we notice that the absolute maximum utilization in during year 2010-11 but there were
underlying issues between the management and imminent labour unrest and hence that cannot be
categorized as the year of maximum effectiveness.
We also noticed that there was a substantial jump in the number of Nexa outlets (64 outlets – 25%)
in the year 2017-2018 as well. Nexa was their offering for the “demanding and dynamic” consumers with
increased quality in the premium segment. Increasing product quality being an element of the technical
approach also points towards high effectivness.
5. Any applications for the concept of bounded rationality discussed in chapter 3. Explain
Introduction: Unlike Rational Model that assumes exposure of managers to all possible alternatives for
arriving at the best solutions, the Carnegie Model reflects the realities of Decision-Making process by
recognizing true elements of it, one of which is ‘Bounded Rationality’.
Why Bonded Rationality comes into the picture: In real world, the uncertainty is high and detailed
information on all alternatives isn’t readily available to the managers, OR at times, the path to optimal
solution isn’t traceable due to paucity of time, resources, and cognitive abilities of the mind.
In these situations, managers take a different route by determining evaluation criteria for accessible
options, to the best of their problem-solving and analytical abilities, to reach the desired outcome amidst
ambiguity, complexity and disagreement.
Decision Making under Uncertainty:
1. List down all possible alternatives based on accessible information
2. Avoid catastrophic consequences or eliminate the paths leading to visible disaster
3. Develop heuristics to evaluate other possible solutions through specified criteria
4. Engage in SATISFICING (satisfy + suffice) by finding, maybe, not the ideal solution but the optimal
one that satisfies everyone and suffices the basic requirements
Application of the concepts of Bounded Rationality in the case: Parallels drawn between elaborated
concepts of the topic from the course and instances from the case.
BOUNDED RATIONALITY PARALELLS FROM THE CASE
1. The visible gap in prices of diesel and petrol in

2011-12 made MSIL’s chairman ponder over
shifting focus to diesel vehicles with no concrete
Availability of restricted or bounded outcome as the government’s fuel pricing policies
information to identify possible outcomes served as a dynamic factor in the situation
2. Another instance could be delay in dates for
seeking approval from minorities because of
ongoing amendments in the Companies Act
1. After all the uncertainty around petrol-diesel
vehicles in the market, MSIL had to finally decide
to discontinue production of diesel cars or only
produce engines bigger than 1.5 litres
Number of alternatives generated are
2. Regulatory ambiguity in minority approvals
limited to a certain number
delayed the process of making the plant
operational as the only possible solution was to
wait for changes in provisions of the Company Law
regarding approval of RPTs
Solution might be arrived at by 1. Institutional investors were raising concerns about
compromises & negotiations trying to SMGPL being a sole manufacturing entity instead
accommodate all stakeholders involved to of a public listed company
avoid dissent 2. MSIL’s Chairman tried clarifying all the doubts
raised by
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09:41:15 and other parties involved
GMT -06:00
regarding fears of increased royalty, outsourcing of
production units and gradually becoming a shell
company
3. Support was claimed from the government by
making them aware of the changes in advance
4. Ultimately, the proposal was accepted with 89.75%
votes in favour of it
1. MSIL went ahead with what they had planned for
the plant in Gujarat – SMGPL producing solely for
MSIL being a full-owned subsidiary
The solution serves satisfactory for the 2. Starting the first production line in 2017, it
organization in the longer run continued its legacy of outperforming industry
growth in FY18 for the 6th year in a row
3. MSIL was confident about increasing sales from
1.64 million in 2017-18 to 2 million in 2019-20
6. Are you able to identify any moral hazard issues in this case? Whether the corporate Governance
system is working perfectly in this case?
Moral Hazards are of two kinds: a) Information asymmetry between the agent and the principal
with agent having information advantage, and b) Agent may have an incentive to pursue goals different
from that of principal’s
A) There was an information asymmetry - One of the key concerns raised by the minority
shareholders was that since the newly formed SMGPL would an unlisted entity, shareholders (principal in
this case) may never get to know the actual cost of production or the cost efficiencies of such an entity
B) Investors also want to know whether the Maruti Board invited such a proposal or merely
accepted an unsolicited proposal made by Suzuki. Suzuki (SMC) was getting very high royalty at 5.7% which
made minority stakeholders unhappy. The institutional investors were also concerned that all these
activities would eventually make MSIL a shell company.
Corporate Governance was not working perfectly in this case. Reasons being:
MSIL Board had initially approved the purchase of land in Gujarat for “future capacity
requirements”. Later on, when there was substantial unrest among the minority shareholders, regarding
the nature of MSIL’s involvement in Gujarat plant, the investors had raised complaints about the decision,
which highlights that the decision making did not include principal owners. Also, the investors were
unaware whether the Maruti Board invited such a proposal or merely accepted an unsolicited proposal
made by Suzuki which highlights that shareholders were blindsided by the developments. Ultimately, an
alternate proposal was put forward by MSIL’s Board of Directors (by 2015), which was voted in favour by
minority stakeholders as well, however, almost 50% of shareholders didn’t vote, including informed
institutional investors, who preferred to stay out of the voting, which again goes to show that not everyone
was onboard with the decision-making.
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Group C02- Market Leader in VUCA World

MSIL SMC SMGPL

Gurgaon Manesar Gujarat

Challenges Faced at the plant

M. Revenue from the outsourcing of the MISL’s end product’s components.

BOUNDED RATIONALITY PARALELLS FROM THE CASE

1. The visible gap in prices of diesel and petrol in

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