Shubha Madhukar

Vision and fortitude were the essential ingredients in the Voltas revival, but it was leadership that defined and drove the comeback

Also see I went about my work like an actor in a play: Nawshir Khurody

Ask him what the first six months of his innings with the company were like and Nawshir D. Khurody, the former managing director of Voltas, solemnly says: "I wanted to run away." Though decamping was not an option, that flight of fancy was understandable given the crisis Voltas was confronted with back in April 1997, the time Mr Khurody took the reins.

The company's basket of diverse businesses had become an unmanageable agglomeration, its key divisions were running up losses, its cost structures were looking increasingly unsustainable, and a bloated workforce was adding to the troubles. Voltas had just registered its maiden loss (Rs 17 crore for 1996-97) and had missed paying a dividend for the first time in the 43 years of its existence. The company's share price reflected this decline, sinking to Rs 21 from a peak of Rs 225.

That was then; today Voltas, which completed 50 years of existence in 2004, is a company transformed. It recorded profits of Rs 27 crore on sales of Rs 941 crore for the nine months ended December 2004 (profits of Rs 39 crore on sales of Rs 1,329 crore for 2003-04). This revival story, scripted under Mr Khurody's watch and carried forward by his successor, Ashok Soni, who took over at the helm in October 2001, is one of grit and forbearance, vision and direction. It is about inspirational leadership. Mr Khurody restored life to Voltas and Mr Soni led the company on to the growth path.

To understand Voltas' present good health, one has to rewind to its days of strife. Established in 1954, the company's competence principally covers three broad areas: the management and execution of electromechanical projects, significantly air conditioning; the design, manufacture and marketing of cooling appliances and solutions; and the procurement, installation and servicing of engineering products and services in the fields of textile machinery, machine tools, mining and construction equipment and materials handling. Voltas' troubles began coming to a head in the early and mid-1990s, when the competitive pressures of the post-liberalisation years changed the marketplace equation. The company was in no shape to cope with the changed reality.

In its early days and right through to the 1980s, Voltas remained a respected and successful enterprise but, like many Indian companies, it was archaic in its practices and tardy in keeping pace with a marching world. Real purpose and accountability were missing in a whole lot of efforts undertaken in those years by the company.

Mr Khurody, an alumnus of the Tata management-training cadre called TAS, was brought in by Group chairman Ratan Tata to resurrect Voltas. He came with a clear mandate from Bombay House, the Tata headquarters: implement the reforms necessary to salvage the company. What ensued was a colossal restructuring process over a period of four years, one that enabled Voltas to transform its business culture as much as its bottom line. The process, thankfully for Mr Khurody, got smoother with a new chairman and board.

He began the restructuring task by forming a core management team comprising Mr Mr Soni, then head of finance, human resources chief K. S. Oberoi, and Bir Singh, head of business excellence. The roadmap was charted and areas of restructuring identified before work began on all fronts. The change mantra was straightforward: chop, revive and grow. The objective was a leaner and more agile company which would parlay its prime strengths in air conditioning and engineering.

With these criteria, Voltas' assorted businesses were scrutinised pitilessly with two key criteria. First, was the business sufficiently attractive, especially in the global scenario? This included evaluation on market size, likely growth and competitive pressures. Second, did the company have the required capabilities to compete successfully? This included a dispassionate assessment of Voltas vis-à-vis the competition on critical success factors in the business. Scrutiny on both these counts provided the leadership team with a common measurement tool for assessing the company's diverse business portfolio.

Businesses not passing the test — the white elephants, the bleeders, the unsustainable elements and non-core activities — were dropped with no regrets. Chief among these was the white goods business, which was proving to be a big drain on the company's resources; three of its four manufacturing facilities were sold. The agro-chemicals manufacturing business was also put up for sale. The two together fetched the company Rs 243 core. The furniture and LPG cylinders divisions were put on the block, and Voltas also exited subsidiaries such as Premium Granites, Voltas Switchgear and Voltas Air International.

Voltas reorganised its remaining portfolio into four clusters: international operations (primarily electro-mechanical projects in the overseas market); air conditioning and refrigeration (primarily HVAC projects in India); unitary products (room air conditioners, water coolers and commercial refrigeration products); and engineering products and services. Chief operating officers were appointed and handed over a mandate to manage the business with financial and operational freedom. Once the segregation had been accomplished, Voltas focused its attention on strengthening its presence and capabilities in these four clusters.

More than just a shift-and-shuffle, it was an alignment consistent with clear-cut core identities. Implicit was the redefinition of the company as a provider of engineering solutions, with manufacturing as an important support activity. This was an acknowledgement of the businesses which had yielded the most sustainable growth for many years. The model of relying entirely on in-house manufacturing was replaced with an outsourcing-assembling-branding model of business. This delivered a twin advantage: Voltas cut down its cost and, at the same time, climbed up the market-share ladder with technologically superior products.

The labour problem was a particularly irksome thorn in the company's side. The burden of an under-employed and unproductive workforce was compounded by obdurate union politics of the debilitating kind, and shop-floor ideologies dead set against change. Any suggestion to correct the situation was met with raucous hostility. What made the going rougher was the fact that the company was legally tied to the labour status quo through several agreements.

In the teeth of all opposition, Voltas shifted its air-conditioner production from its decades-old Thane plant to a more cost-effective facility in Dadra. The move was met with pungent opposition, (with several cases filed against the company). Implementing a voluntary retirement scheme (VRS) in this climate was a challenge, to say the least, but Voltas, having sown the wind, was ready to reap the whirlwind.

Talking to the unions involved setting the agenda for the new era, and remaining steadfast to the cause of change helped Voltas navigate the choppy seas. Management made it clear to the unions that it meant business by taking proactive action and even going in for legal recourse. The unions did ultimately yield to the tough stance of the management, and there was an all-round change in the mindset of the workforce too. "They realised it wasn't a worker versus management issue," recalls Mr Soni, "it was competition versus Voltas." Both the management and the unions withdrew their cases against each other and rightsizing through VRS was implemented amicably.

Even as the management sorted out matters on the union front, it addressed the growing attrition rate in the managerial cadre. Attracting and retaining talent posed huge problems and the resistance to change among managers was almost as pronounced as it was with the workers. Sceptics were ready to brand the restructuring exercise a non-starter.

The thaw came, says Mr Khurody, after clear, frequent and consistent communication that the management would be firm and unrelenting in its well-reasoned objectives.

Between 1998 and 2003, Voltas's rightsizing drive brought down its staff numbers from 10,269 to 3,935. The VRS exercise accounted for 2,681 of these. The VRS cost Voltas Rs 135 crore, but resulted in annual savings in staff cost of Rs 60 crore. Taking the revival agenda forward, contemporary corporate human resources policies were introduced. The focus shifted to training and development, high-performing employees were rewarded, and salaries were linked to performance.

For financially shaky Voltas, managing cash flow for the revamp was another priority. Mr Soni's motto was: "Top line is vanity, profit is sanity and cash flow is reality." Towards this end, Voltas' unproductive assets, including prime real estate, were either made to yield monetary returns or sold, helping finance the restructuring. The company's offices in Mumbai were consolidated with a view to optimising costs. Its corporate office moved from swanky Ballard Estate, an expensive borough, to utilitarian Chinchpokli. Frills were eliminated and systems were automated.

Shedding non-profitable businesses and selling idle real estate and investments coughed up Rs 410 crore. This was used to repay debts of Rs 260 crore and also pay for the VRS initiative. Thanks to these and other measures, the company's annual interest payments have been brought down from a high of Rs 48 crore in 1998 to Rs 2 crore in 2004.

The Voltas of today bears the stamp not just of a reassessment of business priorities, but of a progressive and innovative outlook worthy of a global player. With all restructuring measures in place and firmly consolidated, Mr Soni drives growth through process and performance revamps in areas ranging from manufacturing to IT-enabled services. The Tata Business Excellence Model, an open-ended improvement methodology, is a mandate more than a mantra.

Today the mood at Voltas is upbeat, but resting on its laurels is not an option. Once relegated to the margins, Voltas has reclaimed its place in the pantheon of outstanding Tata enterprises. Nobody is thinking about running away these days.

Uploaded on May 13, 2005