Leadership: Successes And Failures Of Rajiv Bajaj
Earlier this year Bajaj Auto Ltd. crossed a milestone when it became the world’s most valuable two-wheeler brand, with a market capitalisation over Rs 1 lakh crore. Its managing director, Rajiv Bajaj describes this as a validation of the company’s almost two-decade old bet on motorcycles.
That move is not without its critics and even now, in the domestic market, Hero MotoCorp Ltd. has the largest market share. Yet, Bajaj believes over time he can also lead the world’s largest motorcycle market.
There is not a single day that passes without us asking ourselves, how can we do better in this market, which is the largest motorcycle market in the world but it has to be done in a manner that is strategically sound is all that we say to ourselves.Rajiv Bajaj, MD, Bajaj Auto
Bajaj discusses the challenges in this edition of BQ Leadership and how they can be overcome.
This is a lightly edited transcript of the interview portion in which Rajiv Bajaj talks about why he exited the scooter business, the success of the motorcycle strategy and the failure of the quadricycle play.
Menaka Doshi: I’d like for you to talk about how your perspective on leadership has changed in the over two decades you’ve been leading Bajaj Auto.
Rajiv Bajaj: I would actually say that I think leadership is grossly overvalued. If you look at what Carl Jung said, he said the true leader is always led. And, since you quoted something from Vasishtha, let's go back to what the Upanishads would say - that while power may be vested with the king, true authority rests with Dharma, not the king. So, the question we have to ask ourselves is not who the king of the business or the organisation is but what the dharma of the organisation is.
My interpretation is that it is the strategy of the company, which you can call as its vision or its direction or its purpose, that actually leads the company. My 30 years at Bajaj since December 19, 1990 has really been invested in trying to define as robust a strategy as possible -- which also means simple, and as I like to say, one that should be self-evident and eminently clear to everyone from the chairman to the watchman. Only then, can such a strategy align a company, have us all working as one in the same direction and if you're able to do that reasonably well, then maybe that's not all what leadership is about but that is what is most important when it comes to leadership.
Menaka Doshi: Your view on leadership, was it different when you first joined? Because you did join as the son of the promoter family and you knew very well that you were going to be taking on the mantle of leadership. I'm curious to know how and what the evolution of that journey has been.
Rajiv Bajaj: I came into Bajaj at a very interesting time. At that point we were largely a scooter maker, almost everything we made was sold in the domestic market and I joined as a manufacturing engineer because that is what I had studied for my master's degree. It was an interesting opportunity for me because there was still a one and a half year waiting period for the Bajaj scooter at that time and I said to myself hey if I can apply some of what I have learned to the manufacturing process and make it more productive, then we can produce more scooters and that would be great for the company. So, I spent the first five years until 1995 doing that. By the end of that we were pretty much able to make everything that we needed to, in fact we had stock on the shelves but nobody wanted to buy our scooters anymore.
So, this led me to my next responsibility at Bajaj which was product development, and up until then Bajaj really didn't have even one successful new product to its credit. Everything that we were successful at doing we had inherited from the west in terms of the scooter and the three-wheeler. That is still the case if I may say so, with some of our competition in this country -- that they are still churning out the old and have not demonstrated the ability to do the new. So, this was our situation in 1995 as well and for the next five years I worked with colleagues including Abraham Joseph, who is now our CTO, to build R&D for the future and I did that till about 2000. That's the time over which the Pulsar was developed and we started production at our new plant in Chakan.
But then we found that we can make stuff and we can develop stuff but we don't actually know how to market stuff.
Then I learned later from Jack Trout who told me, “You cannot sell, you can only supply a reason to buy”. So, this whole thing that we sell, is a wrong notion I discovered. You have to supply a reason for the consumer to walk in and buy it if you want to sell profitably, that is.
That's why, then I turned my attention to marketing and sales, particularly to global markets because up until then Bajaj was essentially a domestic player. And, for the next five years that is what I did although I was not trained for that. I tried to work with some of the better marketing and salespeople to build a robust marketing organisation. So, this is how I spent the first 15 years.
So, I would not say that I started with a roadmap of what I would be doing for the first 15-20 years.
I have a great passion for Homeopathy. In fact, people say, motorcycles are my hobby, my real passion is Homeopathy. One of the principles of Homeopathy is that, each door shows the way to the next door. You wait and watch, you observe and you don’t think too much. So, I was merely observing as the market shifted, as competition evolved, as Bajaj had to adapt. I found my next chapter and next chapter and the next chapter in my book.
Paranoia, Not Courage
Menaka Doshi: You showed incredible courage of conviction in the face of critics when you ditched scooters and focused Bajaj Auto’s ‘every rupee, every man and every resource’ on motorcycles.
Where did that courage come from? Is it inherent in leaders? Did you have any moments of self-doubt because the market didn't immediately validate what you were doing. And, do you really think that if you weren’t a Bajaj, you would have had the appetite for that kind of risk?
Rajiv Bajaj: It is not a sign of courage. It is in fact paranoia, and as Andy Grove said, “Only the paranoid survive”.
I tried to ask myself, looking around and reflecting on, what had happened to various companies in different parts of the world over the last 20, 30-40 years. What I saw was this -- I saw that in the last 50 years, the only new successful auto company in the world was Hyundai. Other than Hyundai coming out of South Korea and doing really well over time, there was no new company that had survived and sustained. So, it was very clear to me that in an industry where technology had by and large saturated, you had to compete on something else.
Let's go back to the 60s, 70s and 80s. What did companies compete on? They competed in operational terms. The phrase was QCD -- you competed on quality, cost and delivery, perhaps also in managing the environment and labour and close markets. Then came some technological disruption in the 80s and 90s, at least as far as we were concerned, when scooters shifted to motorcycles or started shifting to motorcycles, four stroke engines came in, fuel injection came in, etc. Maybe not new to the rest of the world but certainly quite new for this market. But by the end of the 90s, that was also done.
So now if you're not competing on operational metrics and you're not competing on technology, then what do you compete on? I realised that you need to compete on differentiation because even if technology is the same for everyone, you still need to create, if not the reality, the perception that I have something to offer that nobody else does. It goes back to the same need to supply a reason to buy and in doing so, I found that companies that have followed what is my marketing mantra number one, which is, narrow your focus, or as you said earlier - do less and not more, are the companies that have succeeded.
For example, Harley Davidson making 300,000 motorcycles had a greater valuation than General Motors making 9 million cars because Harley was in the brand business and GM was in the commodity business.
So, it became very clear to me that like any doctor, like any chef, like any artist or like any sports person, if you want to be a global champion, you have to invest every man, every minute and every rupee in doing one thing better than anybody else in the world.
Then when I looked at the world of two wheelers, I saw that, whether by volume or by value or by profitability, motorcycles were twice as big as scooters. So, for me it was a no brainer that Bajaj Auto must chase the motorcycle mountain till such a time as it can be one of the best, whatever that means, motorcycle maker in the world. And then we may have the bandwidth to turn our attention to doing a second thing.
Nobody succeeds doing two big things at the same time. So, to me it was not a courageous decision because it was an obvious one, and in fact it was a risk-averse decision too.
It's interesting you put it that way. Because you really bet the ranch on one product and you gave up the product that Bajaj came to be known as. And, while I get your business case for it, I'm curious — was there no moment of self-doubt?
Rajiv Bajaj: No. None at all. Because all the time I could see around myself, I won't name them, but, competition in India and even outside of India trying to do the exact opposite.
When the herd is headed in one direction, you can either panic because you are not or you can derive confidence from that. Because it is said that if you want to succeed you have to be reading something that nobody else is reading, and doing something that nobody else is doing.
So, I was very confident that all these people who are headed in the other direction are headed in the wrong direction and over time it was becoming clear that one after the other they were failing. Again, I won't name them, but even in the last few days there is so much news out there about one such so called conglomerate or whatever you call it that has slowly done away with all their indiscretions, come back to their core and suddenly the market is rewarding them. In fact, there's two of them out there. I could see that, that these people are paying a heavy price continuing to propagate their hubris, because it is very difficult for the human ego to be able to pause, breathe, accept that you're wrong, not be in a state of denial and change course. I mean, very few people do that till they absolutely have greatness thrust upon them.
So, I had no self-doubt at all, it was very clear to me that keeping it simple as we had done was the best way forward.
Horses For Courses
Menaka Doshi: The second very successful decision you've made besides betting on motorcycles, is taking this company global. You now serve almost 70 countries, almost 40% of your revenue comes from the export of motorcycles.
I know there's a backstory to this. I know you said in an interview that you went to your father in the early years and you asked him what he thought the road ahead was and he said, be the best in everything you can do. And you asked him what the best meant and he said it meant be global. That maybe was one reason why you set off on this journey. It's proven successful for you.
I go back to the ability to take risks. You keep telling me it's not the ability to take risks, it's actually the terrible fear of failure that prompts you to do this. Was it the same logic that applied to how you went about doing exports?
Rajiv Bajaj: Actually, making motorcycles and going global are two sides of the same coin. It is because my father said to me that his aspiration was for Bajaj to be a global company. That was my cue to say, fine, in that case, we need to narrow our focus to motorcycles and become one of the best motorcycle manufacturers in the world. So, one thing led to the other. They were not independent things.
And, even at that time our goal was never to be the biggest motorcycle maker, because we had seen over the years, amongst others, people like Toyota and Volkswagen, in the pursuit of volumes, make all kinds of mistakes - from airbags going off when they shouldn't, accelerator and brake pedals not working the way they should and of course, the emission scandal and stuff like that. Those CEOs had acknowledged that the pursuit of volume can be very inimical to the business. So, our goal was never to be number one in volume terms.
Our goal actually was to be the most versatile motorcycle maker in the world, and I think we have been able to achieve that. Because, we have a business model where on the one extreme we are shipping a motorcycle brand called Boxer to Africa. From having entered Africa only about 15 years back, the Boxer is one of every three motorcycles sold in Africa. So, it's been very successful but because of the market that Africa is we have to ship the motorcycle for as little as $400 and still find a way to make money on that. On the other hand, we are shipping the ready-to-race KTM high performance motorcycles to developed markets like the U.S., Europe, Japan and Australia for as much as €4,000-6,000. That's the retail price.
Out of the same kitchen to have the ability to build such horses for courses where you are able to build a number of brands, maybe we have 8 or 10 such brands — each of them has a clear purpose, a clear segment, a clear price point that has to be met, a clear specification to be competitive against whoever is our competition in that segment — to be able to make all of this out of one organisation is very unusual. I don’t know if there is a second maker in the world in our industry who has been able to do this.
I've been in Africa for example, the manufacturers out of the west are not able to compete at all. We don't find BMWs and Ducatis and KTMs and Harley Davidsons there of course. On the other hand, in the developed markets where we are present through KTM and Husqvarna you don't find, for example, Chinese makers or even Indian makers there. So, Bajaj is probably the only company that can straddle the 70 plus countries across the globe and that is the versatility that we have achieved that we are very proud of.
Root Brand, Not Roof Brand
Menaka Doshi: Does that in any way take away from what your brand means — when it can mean a $400 motorcycle or a €6000 motorcycle, that's one question. And secondly, how did you accomplish the ability to serve out of your kitchen both these extreme ends of the market?
Rajiv Bajaj: The answer to the first question is that —
More specifically, Bajaj is our B2B brand. I am an employee of Bajaj Auto, somebody else is a supplier or a dealer of Bajaj Auto, somebody is a banker or somebody is a shareholder of Bajaj Auto. This is all B2B.
As far as the customer is concerned, Bajaj Auto is really not the B2C brand. I mean nobody comes into my dealership saying, “Hey, show me a Bajaj motorcycle”. They say show me a CT, show me a Platina or show me an Avenger or a Pulsar or a KTM etc. So, the B2C brand as much as it is Lux and Dove and Lifebouy, it is CT and Platina and Pulsar and Avenger.
I think this is very, very key to our strategy, and that is why a CT may stand or a Boxer may stand for a $400 motorcycle but a Dominar stands as a Rs 2,00,000 motorcycle and consumers are able to comprehend this. They know all of this comes from Unilever or P&G or Bajaj, and that's fine. So, we don't mix up the B2B brand with the B2C brand, particularly in terms of how we brand and how we communicate our products.
Menaka Doshi: How did you manufacture all of this from the same kitchen and what did it take to be able to do that? I'm talking more about approach and mindset rather than where you sourced your materials from.
Rajiv Bajaj: There's two parts to it and the key is alignment—what you do at the front end and what you do at the backend.
At the front end, we don't compete with 40 different brands as very often you will find our competitors do. We don't have just one brand, as I just said, we have about 10 or 12 brands. So not too few, not too many. They’re very sharp brands, each with a very distinct purpose.
Because in a uncertain world, and the world has been uncertain not just for the last 12 months but always — where there is competition the world will be uncertain, you have to be extremely flexible to adapt. You can't think, you can't plan, and the days of the five-year plan are long gone. You are almost living by the day, by the week and continuously adjusting yourself as you would do in a yoga aasana, to find the next level of comfort in a new situation.
In this situation how you design your product and process to be modular is very key. So, in the product context, it is called a product platform, it may be engine platform or transmission platform or a frame platform or a suspension platform or a brake platform, etc., you ensure a certain modularity.
Now obviously we have to strike a balance there between, on the one hand doing what's right for a brand—what will appeal to the customer — and yet, maintaining as much commonality as you can in parts.
Two, in terms of your process, you make sure that through the same assembly line, paint line, weld line, machining line you can put all this through. So, when you have done this you have largely done this to hedge yourself against any change in mix.
If you are able to align these two correctly, for example, at our Chakan plant in Pune which we call our manufacturing laboratory, we make the high-end motorcycles with modular product and process platforms. On the other hand, in our Waluj and Pant Nagar plant, we make the 100-125 CC motorcycles. Which means the lower priced and higher volume motorcycles. Again, with the modularity that is right for those products with those processes. So, when you build a modular kitchen like this and align it correctly to the brands that they are serving, I think then you can achieve this versatility.
I don’t think it’s unique to us. I think everybody must have their own version of it or at least will claim to but how you apply it in practice is very important. And, it is not just the manufacturing principles of the backend. How you marry it to your marketing principles at the front end is very important. Otherwise, you can have a very versatile kitchen but if your brands do not stand for distinct positions in the mind of the consumer you immediately lose pricing power.
I mean, one thing about Bajaj versus its global competition be it the Japanese or be it the Europeans, you will find us, always, not only in the domestic market but also in overseas market, almost without exception, to be priced on par. Sometimes we will price 2-5% higher if we are able to offer more products for the same price. This is very important and this is ultimately the final validation of whether your strategy works or not.
Often people have said, we as a company are obsessed with 20% Ebitda, we are not. In an open market, your Ebitda is controlled by your competition not by you. What we are obsessed with is pricing power. Now, once we price on par with competition, ultimately our bottom line will be dependent on how efficient we are within. If that happens to be 20%, that’s fine. My belief is that most manufacturers are a 20% Ebitda company but the reason the industry typically averages at 8-12% is because they do lots of stuff that they should not be doing where they don’t have pricing power, where they have to either directly or indirectly discount and that is what then hits their bottom line.
Menaka Doshi: What would you consider moments of failure or strategies that didn’t work or products that didn’t work over the last three decades?
Rajiv Bajaj: I’m going to give you a somewhat vague answer. In the sense that I really believe in what someone said, which is this, that if a victory is looked at in sufficient detail, one cannot distinguish it from failure.
Look at my first five years in Bajaj, when I joined the company we were making 154 scooters on the assembly line in a single shift. I was working with a team of people and we thought that it could be 190, we achieved that. But three months later it looked like it could be 210, and then it became something like 250. Over the years it has become 1,200 vehicles per line and per shift. Now does it mean that 190 was a failure or 210 was a failure or was it a success?
So, I think the only failure to me in a business context can be when you deviate from principle. As someone said before we start with the process of possibilities, we must begin with the purity of principles. We stuck to our principles -- whether it was our marketing principles or our manufacturing principles or the alignment between the two. As long as you stay with principle, I would insist that everything is nothing but a stepping stone to the next improvement that you can make. So, in that sense I would be modest and say that I don’t think we have ever failed. But at the same time, we have had lots of opportunity for improvement.
Let me give you an example. When it comes to technology, we made our first four stroke scooter called Legend. It was a good scooter but today, after 20 years, we are able to make a four-stroke engine that is far superior to what we made in 1996. Does it mean that we failed in 1996? I don’t think so. As long as you are on the path of improvement, I don’t think there is any failure.
Menaka Doshi: I can argue that year after year you keep admitting and acknowledging that your domestic market position needs to improve but you’re not able to change it.
Now I know your counter to that is going to be about holding price points. That market share is not more important than profitability, and I get that. Yet I think there has been a considerable decline -- you are now maybe the third or the fourth player in the domestic market. You don’t consider that as a failure? Because there are products that haven’t worked, there are products that had too many variants, there are products that didn’t quite hit the spot.
Rajiv Bajaj: First of all, I don’t count us as a two-wheeler maker because we are a motorcycle maker. In the motorcycle industry we are number two after Hero of course, and in the domestic market. We are a distinct number two. Now the issue with this is that Hero had first mover advantage with the 100-cc motorcycle, and in India outsells us by something like 4:1 in that segment. Look at the export scenario, we were first mover on exports, Hero probably took 10 or 15 years to work. So, when you are a global maker, serving 70 plus countries, you cannot expect to be number one in every country. I don’t know any brand and any manufacturer that’s been able to achieve that.
Having said that, let me try and put it like this. I have found that in a business context, in terms of brands and products, there are only two reasons for failure when we do fail. One is line extension—when you extend a brand to do much more than it should be doing, when you defuse the brand, when you forget what made it successful in the first place and then in trying to appeal to everyone you end up appealing to no one. This happened to us with our Discover. It didn’t happen to us with any other brand.
Two, which hopefully we’ve not been guilty of is, too little defense. What I mean by that is when we have market leading products like a Platina or a Pulsar or even our three-wheeler or even KTM now in its segment, if you get complacent, if you allow quality to deteriorate, if you allow costs to spiral out of control, if your customer facing organisation is insensitive to the customer -- you’re not defending your leadership. So hopefully we have not been guilty of that, though one can always do better in that regard. These are the only two things that matter, I realised.
One, do not defuse your brand, and two, do not fail to defend your brand once you build a leadership brand by which I mean a number one or a number two brand. As long as one is not guilty of these two, I think of everything else as an opportunity for improvement.
Menaka Doshi: Does it not matter to you if you’re not number one at all in the domestic market? I know you can’t be number one in every market but this is your home market, this is half your revenue.
Rajiv Bajaj: Yeah, certainly, I mean, absolutely. There is not a single day that passes without us asking ourselves, how can we do better in this market, which is the largest motorcycle market in the world but it has to be done in a manner that is strategically sound is all that we say to ourselves.
Obviously, one can’t go out and pull prices down by 10% and hope to gain share because that is never going to work. Because, if nothing else, the leader can do the same thing three days later. One can’t go out and make a dramatically different product because it doesn’t exist anywhere in the world. We are in a technologically saturated industry as I said before. So, that is why we need to do something other than price and pull on the lever that is not price or technology, that should be the lever of differentiation.
The problem, and it’s obviously management’s responsibility to overcome that problem, is that when you want to create differentiation in a 5 lakh-rupee motorcycle it’s relatively easier as it is in a 50 lakh-rupee car. But if you want to create differentiation in a 2 lakh-rupee car, or a 3 lakh-rupee car to take on Maruti, you will struggle because the consumer is not willing to pay you more than a few rupees more. And how do you make something remarkably different happen for a few rupees more? This is the challenge.
Either one can be pig-headed about it and say that, no, I still want to do it but then you will only have blood on your nose to show for that. So, how does one approach this problem? Our approach I’ll share with you. Our approach is to say that it is very difficult, particularly in this situation, to win intra-segment, it is very difficult for me to take away 100-cc motorcycle from the leader with another 100-cc motorcycle. It has never happened in the world; hence it is unlikely to happen. The only sustainable strategy can be to win inter-segment. I have to inspire people to move from 100-cc to my area of strength, it may be to move down to a 70-cc motorcycle if there can be such a thing or to move up to 125 or a 150-cc motorcycle. But that process takes time. There was a time when 100-cc motorcycles were 90% of the market, let’s say about 20 years back. Today it is down to 50% of the market. So, it’s not that that shift is not taking place, but one has to be patient with that.
The Qute Debacle - An ‘Insurance Policy’
The other thing which I’ll quickly touch upon and I’m not sure failure is the right way to describe it, but the Bajaj Qute quadricycle is not necessarily the success that you would have hoped for it to be. The regulatory issues that delayed the launch are common knowledge. But, in your examination of why it didn’t deliver what you wanted it to—what have you learned?
Rajiv Bajaj: The short answer is that, you are right. We thought that the Qute would do better than it did in volume terms, which is only a few hundred a month, both domestic and exports put together. Having said that, I think once again our principle was correct, which is we did not try to make a car. Then we would be stepping out of our Lakshman Rekha, we would have lost alignment, we would have strayed from frugality and modularity and we would have paid a heavy price as do truck companies that make cars or SUV companies that make two wheelers. So, we didn’t make that mistake.
What are our two greatest assets? Our skill sets and our cost structure. So, we stayed with the skill sets and the cost structure of the three-wheeler business and put a “fourth wheel” on the three-wheeler in the process. Now certainly the effort we put in or the capex we invested, our industry is not a capex heavy industry unlike the car industry, but nevertheless whatever effort we put in and the money we put into that obviously has not been as productive as you’d like it to be. But the good thing about it is that when you do not stray away from your core and you experiment out of your core, you might be nicked here and there but you’re not going to break anything. That’s exactly what has happened to Bajaj. I mean, whether it is the Qute or whether it’s a few other things that may not have realised their potential, that did not stop Bajaj from still becoming the most valuable two-wheeler company in the world. That’s my point.
Because every time you start with something like a KTM which fortunately succeeded or a Pulsar that succeeded or a Qute which didn’t go the distance, you’re starting with a hypothesis and there is nobody in the world who knows whether it is going to work or not. Now what do you do? Do you therefore not experiment? Do you not try to push the envelope in some direction? Do you not take a risk? Or do you become risk averse?
The danger of doing that was that if somebody else had made the quadricycle before us, as some people were talking about making it, and had that worked, the bottom would have fallen out of our three-wheeler business and we cannot afford that because that’s a hugely profitable niche for us.
So, I would say in the overall context, just as you take an insurance policy in life and hope that you will never need to call that in, Qute was our insurance policy as far as the three-wheeler business is concerned. A few hundred rupees in insurance is okay, we can take that.