Shobha Ramswamy

It was seven years back that Voltas was afflicted with the chills. The engineering and air-conditioning giant, a pioneer across its industry segment, had reported a loss of Rs 16.82 crore and the warning bells were ringing furiously. Something had to give.

The fact that Voltas had to its credit a variety of firsts in India — the first room air-conditioner, the first integrated plant, the first split air-conditioner, the first mini water cooler, the first full range packaged air-conditioning unit, the first microprocessor controller, the first screw chiller, the first indoor air quality systems — counted for little in an environment where the rules were changing so fast that the company could hardly keep up.

"Our problems were typical: excess manpower and loss-making business units," recalls Anil Gole, vice president, human resources and administration, Voltas. "We had more than 10,000 employees and our fingers in several pies, many out of sync with our core competence." Engineering a turnaround would entail restructuring the company and realigning its human resources. Simply put, that meant getting out of peripheral businesses and reducing the size of its workforce.

Voltas hived off its the white-goods division to a joint venture with Electrolux and the chemicals (manufacturing) division was sold to Rallis. It also set up a property cell to make optimum use of its real estate assets. These and other measures helped in plugging the company’s leaking finances and it also reduced staff numbers. But more needed to be done on the latter front.

Litmus test
One of the main challenges Voltas faced was with its unionised employees. They accounted for almost 80 per cent of the company’s total wage bill, some 15 per cent higher than its closest competitor. Resolving this issue called for innovative strategies, one of which was called ‘zero budget’, under which departmental heads had to identify employees without whom their unit could not function.

This exercise resulted in almost 1,000 employees being encouraged to avail of a voluntary retirement scheme (VRS). That was an important step in a process that has seen Voltas reduce its staff numbers to 3,600. Voltas recognised the need to boost employee morale. Previously it had followed a policy wherein there was internal parity in compensation levels across all divisions, irrespective of the industry where they operated. The company decided to switch to a compensation structure that was more in tune with the market. "In 1996-97, everybody here had a performance rating above 90 per cent, yet we registered a loss," says Mr Gole. "Things had to be set right."

Entry-level salaries were hiked to attract the right kind of talent. Concurrently, compensation was correlated to performance and cash awards were introduced for the best employees. The last measure was clearly defined: 33 per cent for individual performance, 33 per cent for the division’s performance, and 33 per cent for the company’ performance. This went a long way to improve motivational levels. "What we have done is decentralise decision making. It is all but empowering people to become leaders," says Mr Gole.

Weaving the web
Compensation was but one component of the new Voltas way of functioning with its people; another was transparency. In 1999, it became one of the first companies in India to introduce online appraisals. Every single employee was encouraged to set his or her own goals and assign them values. These were aligned with the company’s vision and business goals and uploaded onto Voltas’ intranet. The goals were just a password away. It constantly reminded them of their unmet targets and the company’s vision.

Voltas then decided to go one step ahead. All salary processing tasks, leave encashment details and tax calculations were done online through a ‘human resource system’. This facility is accessible to everyone, management as well as blue-collar employees, through a unique password. The innovative use of information technology made the whole process paperless "We saved Rs 45 crore in six years through this process," says M. M. Miyajiwala, executive vice president, finance, Voltas.

The company’s finance and commercial department now publishes its accounting standards, internal accounting and finance policies and procedures online. It has its own strategic business plan, a key plank of which is improving the knowledge base of Voltas employees through continuous training, group activities and problem-solving exercises. This is the first finance function to be ISO certified within the Tata Group.

The coolest one
With its finance and human resources departments put in fine fettle, Voltas turned its attention to its cooling appliances business division (CABD). While the company continued to be a leader in the air-conditioning industry, the changing dynamics of the air-conditioning market had ushered in a new order in this segment. Previously perched at number one, the company had slipped to number five. Research showed that the Voltas brand was perceived to be an old and jaded. A complete overhaul of the branding communication was the need of the hour.

Consumers were looking for more interactive features in their air-conditioners and these were only available in the premium range. So Voltas launched Vertis, the first popular segment brand to carry interactive features of the premium sector with no increase in cost. Manufactured in association with the US-based Fedders International, the world’s biggest air-conditioner manufacturer, Vertis proved to be a breakthrough idea.

The advertising campaign for Vertis targeted young couples, with the gist of the message being to buy American technology at Chinese prices. "Vertis had a lot of additional features and was a replica of what was being sold in the international market," says K. J. Jawa, vice president, operations, Voltas. The company built on this success by launching a product at every price point within the brand umbrella of Vertis.

Small is big
There was more to the Voltas push in air-conditioners than Vertis. The company understood that it needed to think out of the box because while televisions and washing machines were flying off the shelf, the air-conditioning market was stagnating despite falling prices.

Voltas commissioned business strategist Rama Bijapurkar to study the market and she concluded that if monthly bills for air-conditioners could be brought to less than Rs 1,000 the overall market would triple to 3 million units annually.

"Two factors were hindering the growth of the industry: initial and recurring costs," says Mr Jawa. "We worked with our design team and our collaborators to introduce an innovate product that could counter these factors." The result was an expansion of the Vertis range to include air-conditioners of 0.8 tonnes and 0.6 tonnes, the second for an eye-popping price of Rs 9,999. The 0.6 version adds up to the monthly electricity bill by just Rs 500 if run every night.

The marketing campaign for the new entrants sold the idea of making air-conditioners a reality for every Indian consumer. "We are looking at specific markets," says Mr Jawa, "like the coastal belt — where coolers are useless and which anyway accounts for 70 per cent of our air-conditioning business — and flats across emerging townships."

The new Vertis models have taken the market by storm, with the company selling more than 13,000 units in the first six weeks following their launch. "No other company thought of breaking the price barrier; our idea has paid off," says Mr Jawa. "We are the No 2 brand in the country, a rise of three places. Our volumes have grown almost 300 per cent in the last three years."

Sensible solutions
Another Voltas innovation has been the ‘rural’ refrigerator, which starts at Rs 5,000. This range has been launched under the Coldcel brand in 11 markets and the response has been good. Additionally, Voltas recently launched a sub-brand, Coldcel-Teenie Weenie, which is aimed at the younger age group in metros and small towns. The Coldcel range has been specially designed to withstand high voltage fluctuations and frequent power cuts.

Voltas’ innovation equation extends to its Sensicool air-conditioning systems for telecommunication centres and other places where the heat load is heavy. Previously, these places used several split air-conditioning models, which meant increased power loads. The Sensicool range, with its state-of-the-art microprocessor systems, is specifically designed to handle high levels of heat generation and is best suited for unmanned telecommunication shelters.

Resting on its laurels is not an option for Voltas, which is now working on a split air-conditioner with a tonnage of under one (at a price of less than Rs 15,000). The company is also mulling the option of entering the frost-free refrigerators segment. Having banished the chills, Voltas is now confronted with the far happier prospect of staying hot in an ever-expanding market.

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Uploaded on September 3, 2004