Hero MotoCorp Joint Managing Director Sunil Kant Munjal spoke about how the family grew the businesses at the Strategic Management Society Conference in Mohali on December 17, 2013.
The Munjal family came to India after the country achieved independence, leaving all its wealth and business in present day Pakistan. The family settled down in Ludhiana, Punjab, and had to start all over again.
In 1948 it began to sell bicycle spare parts, as this was its business before Partition. Today, 65 years later, the Munjal family-controlled companies are the largest producers of bicycles and motorcycles in the world.
At the Strategic Management Society Conference, being held at the Indian School of Business in Mohali, Sunil Munjal, Joint Managing Director at Hero MotoCorp, spoke about how his family grew the businesses, giving a glimpse into management traits that contributed to their success.
The Munjals did not sit back and relax when the bicycle parts business began to do well. They started looking for growth opportunities. That was the time when major industries were reserved for the public sector in India and private enterprises had to get licenses to start smaller businesses. They chose to produce bicycles and got a license to produce a fixed quantity. Though demand was good, they could not produce enough bicycles to sell. The main bottleneck was shortage of critical parts, which were imported from the United Kingdom.
To overcome the shortage of parts and improve production, the Munjal family began to talk to friends and relatives to set up a business to produce bicycle parts. They offered these entrepreneurs knowledge support and a purchase agreement. If Ludhiana is today considered to be a hub for cycle manufacturing in the country, it is to a large extent on account of the partnerships that the Munjal family created. In 1984 they formed a joint venture with Japan's Honda Motor to build motorcycles. The joint venture, which lasted 25 years, created the largest motorcycle manufacturer in the world.
Even before many in the country understood the term, the Munjals began practicing it. "We told our friends and relatives setting up businesses producing various bicycle parts that the dealings will be at an arms' length. They will have to produce quality products and will be paid the right price. They were also told that the family would not be making any equity investment in any of the ventures," Munjal said.
Just in Time (JIT):
Those days the Munjals did not have a very strong cash flow and one of the conditions they stipulated to their suppliers was that they would have to maintain their supply in line with demand. "We did not want to set up a warehouse. If we had done that we would have filled them with parts and incurred huge costs," Munjal said. "Thus, we practiced Just in Time manufacturing even before it became a manufacturing strategy."
The Munjals encouraged their employees to experiment from early on. They wanted them to think and behave differently. "Each employee was asked to come back with two piece of information. One, what is that anyone is doing better than the Hero group and the other what is the negative feedback about what the group does," Munjal said.
The Munjals benefited from the tailwinds that fuelled growth in India initially through licensing and then post-liberalisation. But the constant refrain within the family is to how it can grow faster than what the tailwinds deliver.
Apply learning into other businesses:
The family constantly applied their learning from existing businesses to start new ones. Today, the group comprises 32 companies across five verticals. This strategy has enabled the family to sort out its succession plan smoothly. "Today, three generations of family members are involved in the business," Munjal said.
Family in business:
The Munjals believe that a family-run business creates wealth in the long term. While it employs best professionals, the family still controls the businesses. "In this era of quarterly results a professional CEO will be under immense pressure to deliver short-term results over long-term good of a company. A family member will not have such a compulsion," Munjal said.
Bite the bullet:
The Munjals did not hesitate in taking risky decisions. The case in point is parting ways with Honda. When the group realised that the joint venture with Honda was holding back growth (it had no control over research and development and exports were restricted) it broke up with the Japanese partner and went on its own. "In the first 12 years we learnt a lot from Honda. But in the last 15 years Honda started taking ideas back to Japan from Hero Honda. Our Gurgaon plant's efficiency is 18 per cent better than Honda's plant anywhere in the world," Munjal.