The background
The year was 2006 and Voltas's Unitary Products Business Group (UPBG) — the division making and marketing the company's wide range of air conditioners — was veering off the profitable course, racking up accumulated losses of more than Rs1.2 billion over a 10-year period. There were two principal reasons: the high fixed-cost structure of this part of the business and a lack of differentiation in what had become a highly competitive environment.

 

Company: Voltas Innovation: A flexible and low-cost business model

This was the time when market feedback began flashing a bright red light on customer concerns about the cost of electricity associated with air conditioning. For the public, the cost of operating an air conditioner was prohibitively high, and all the comfort the machines offered could not offset this drain.

 

That's when Voltas pioneered the introduction of star-rated air conditioners, well before their use became mandatory. Customer acceptance was almost immediate and the company's market share soared, but the UPBG division was still saddled with skewed cost structures due to soaring high fixed costs and a large capital deployment spread. As sales improved, the division's manufacturing and the supply chain were crying out for an overhaul.

 

The innovation
The cost crisis in UPBG had been exacerbated by the en-masse departure of the division's senior operating team in the winter of 2006. Just as bad, a 2 per cent increase in prices led to a significant fall in Voltas's market share for air conditioners. With backs to the wall and survival at stake, a new-look UPBG took up the challenge of recasting its business model into an 'asset-light, people-light and pocket-heavy' structure.

 

It started with the development of a new supply-chain model, where the manufacturing of the air conditioners' indoor panels was outsourced to Chinese suppliers. The large operational scale of these suppliers, their good design abilities and the fact that nearly 70 per cent of a typical air conditioner's components come from China have helped UPBG reduce costs as well as take the lead in the technology race.

 

Production for the domestic Indian market was boosted by taking on board seven original equipment manufacturers (OEMs) spread across the country. This enabled Voltas to get closer to the market, reach the consumer faster and, while they were at it, reduce its carbon footprint. Matrices were designed to choose the best option from Chinese outsourcing, buying from OEMs and in-house manufacturing.

 

The payoff
Four years down the line, the new structure has proven its worth many times over. The revamp of the entire business model — from manufacturing to delivery, combined with elements of outsourcing — created a sinewy and flexible business model that has stood UPBG and Voltas in good stead. For the team involved in crafting the new structure — Pradeep Bakshi, Behram Sabawala, Jayant Balan, EC Prasad, Manas Vijh and PSV Janardhan Rao — this was vindication and reward.

 

The key outcome is evident: standout levels of growth in sales as well as profitability, making Voltas one of the most profitable players in the air-conditioning segment of India's consumer durables industry. That's as cool as this solution could have got.