Organizational Structure and Process Design
Organizational Structure and Process Design
Maruti Udyog Limited is a subsidiary of Suzuki Motor Corporation, the largest manufacturer of mini passenger vehicles in Japan in terms of sales volumes. Suzuki was also the eleventh largest vehicle manufacturer in the world and the fourth largest manufacturer in Japan in terms of worldwide sales volumes in 2000. Maruti was ranked twentieth in terms of worldwide sales volumes amongst vehicle manufacturers, and has been the largest passenger car manufacturer in India. In fiscal 2002, it had the highest sales volumes of 339,964 cars and a market share of 58.6%. Maruti has a diverse product range that includes ten basic models with over 50 variants, of which nine models are manufactured locally and one is imported from Suzuki. A timeline showing the evolution of Maruti over the years is given in the appendix.
Maruti?s manufacturing facility comprises three integrated plants (all located in the same premises) located at Gurgaon in the state of Haryana. The production facility capability at each plant is upgraded on an ongoing basis to improve productivity and quality. At present, it has an installed capacity of 350,000 vehicles per year, which is the highest among passenger car manufacturers in India and among all passenger car manufacturing facilities of Suzuki?s subsidiaries outside Japan. There are total 17 manufacturing shops and are capable of producing more than 50 variants of the nine basic models manufactured, with different specifications, within the same day. The production of a car occurs in the following stages: Press Shop, Weld Shop, Paint Shop, Assembly Shop, Machine Shop and Engine shops.
Maruti has extensive sales and service network, the largest network of dealers and service centers amongst car manufacturers in India. As of March, 2003, they had 178 authorized dealers with 243 sales outlets in 161 cities. For service, they had 342 dealer workshops and 1,545 Maruti Authorized Service Stations, or MASSs, which covered 898 cities in India backed by Express Service Centers on 30 highways across the country.
For the supply of raw materials, components and spare parts of their products, they have 299 vendors all over the country. Vendors located within a radius of 100 km from their facility supply the majority of our components. As of March, 2003, Maruti had 4,590 employees, including 614 engineers, 84 MBA graduates and 24 chartered accountants.
We chose to study Maruti as its takeover and integration with Suzuki as well as dramatic changes in its task environment presented an interesting period to understand. Also we had a person with more than six years of experience in Maruti in our group and we were able to leverage his contacts within Maruti to get the required information.
We interacted with a member of Senior Management of Maruti at Delhi through e-mail. This gave us a broader picture of structure and strategy of Maruti. Then we interviewed the head of Regional office of Maruti at Bangalore which helped us understand the dynamics of its vendor, dealer relationships better. We also chatted with a MUL employee undergoing training at SMC Japan to get a fell of culture of Suzuki. Last but not the least we interacted with summer interns and ex-employees of Maruti at IIM Bangalore.
All these formal and informal interactions helped us form a holistic view of the organization and we were better able to appreciate the systems and processes at Maruti.
Maruti has a Functional organizational structure with Horizontal Linkages. The activities are divided broadly based on following functions Finance, Marketing, Engineering, Sales, Spares, Production, Materials, Production Engineering, Parts Inspection, Quality Assurance, Maintenance, Human Recourse Development, Information Technology, New Business, Administration
As, it is a very big organization, these are further divided into smaller divisions, based on various criteria (product, plant, location etc). There are total 29 divisions in Maruti, and are headed by one Divisional Head, which is a Functional post. Then these Divisions are further divided into 132 Departments, which are headed by one Department Head, which again is a functional post.
A smaller version of the organizational chart is shown below. The complete Organizational Chart is attached in the Excel file.
Organizational Structure of Maruti
Functionally, the structure of Maruti is very flat. The employees are divided in just six functional levels, namely Workers & Technicians, Supervisors, Executives, Section Managers, Department Manager, and Division Manager. Division Managers then report to Directors. However, hierarchically, these are divided into different levels, like, Technicians are divided in 7 levels (L-1 to L-7), Supervisors in 3 levels (L-8 to L-10), Executives and Managers in 4 levels (L-11 to L-14). Above this the Levels are designated as IDPM (Incharge Department Manager), DPM (Department Manager), DDVM (Deputy Division Manager), and DVM (Division Manager). The Section Manager, Department Manager and Division Manager are all Functional posts, which means anybody from levels L-11 to L-14 can be a Section Manager, an IDPM or a DPM can head a Department, and an DDVM or DVM can head a Division.
Increasing importance of Boundary Spanning Units:
With the increase in competition MUL has realized the importance of boundary spanning units. It requires its employees to pay frequent visits to showrooms of other car manufacturers to get information as to how they deal with their customers and what are the services offered by them.
Once Puneet, our group member was asked to pay visit to a Hyundai showroom. He talked to the sales representative there and elicited as much information as he could. When Puneet was asked his telephone number he gave a fake number by changing the first and the last digit. Puneet was surprised when he received a call from the sales representative after two days (the person must have really tried different numbers). When asked about his decision, Puneet told him that he has already bought a Maruti Zen. The sales representative congratulated Puneet for the new car and at the same time he asked what led Puneet to prefer Zen to Santro. During the entire conversation the representative was polite and enthusiastic. The amount of determination and dedication shown by this person was missing on part of the sales force of MUL and this was the feedback given by Puneet to his top-level managers.
The increasing importance of Boundary spanning units can also be seen in the importance of department like Marketing and service. The head of Marketing and sales department reports directly to the MD whereas other departments like Finance and Production have to go through Joint Managing Directors.
Horizontal Information Linkages
Various Information Systems play a significant role in providing Horizontal Information Linkages. These Information Systems are well integrated and provide most of the information required by different departments. Most of these Information Systems were developed over time by the IT Department of Maruti. These Systems have evolved over time according to the changing information needs. The largest of such Information Systems is Production Management System, which provides the production related information to all the concerned departments. Some of the others are: Finance and payroll system, Marketing & sales systems, Spares Systems, Extranet with Dealers, Data warehousing and various MIS systems, Supply Chain Integration Initiatives (Extranets), Knowledge Management Portal, Vehicle tracking system etc. Apart from these Email, messaging and workflow systems also play an important role.
In some of the Departments, one person is designated as ?Coordinator? for different activities, which have a liaison role with other departments. An example is the ?Quality Coordinator? in the Production Shop, who is a ?single window? for communication related to quality related issues.
In some specific short term tasks, various ?Cross Functional Teams? are formed taking people from all related departments to achieve the specific targets. Mostly they are used for Quality Improvement, Problem Solving, Cost Reduction, New product Development, New Product Trials related issues.
The automobile industry is a process driven industry. In Maruti also, the formalization is very high, all the operation procedures, standards, methods, instructions are written down formally. Apart from the ?Company-wide Procedures?, all Departments have their ?Department Procedures?. These Department Procedures define the scope of work for the department as well as the roles and responsibilities and work flows. These procedures are approved by the Division heads, and are available to all concerned (mostly in the form of electronic copy), and also available for other departments for reference.
In production shops, the standard operating procedures are documented, and displayed on the work stations. They are called ?Maruti Operations Standards? or MOS. Similarly Maruti Engineering Standards (MES), Maruti Inspection Standards for Parts (MIS-P), Maruti Inspection Standards for Testing (MIS-T) etc are also available.
Changes in all these documents are recorded for the purpose of back-tracking purpose.
The functional structure and further division of labor makes high degree of specialization in Maruti.
The span of control becomes a very interesting dimension in Maruti because most of the posts are functional in nature. If we look at the Section Manager in some department, then there might be 4-8 people of different levels (L-1 to L-13) directly reporting to him without any level-wise hierarchy amongst themselves. Therefore, in some cases, people working at as high level as L-13 do not have a direct sub-ordinate to them. The span of control is generally in the order of 3~6 at the top management level, 4~8 at the middle management level, and 0-5 at lower management levels (other than production). In production departments, the span of control at lower management level goes up to 40~50, as those many workers and technicians directly report to a line supervisor/ shift in-charge.
The Centralization is very low in Maruti, as the decision making authority is quite de-centralized and distributed across all levels.
Maruti can be rated high on the Professionalism dimension, as most of the jobs require technical skills, and in some specific areas like Design and R&D, special training at Suzuki is also required. This is also evident from the fact that around 1900 employees of Maruti have been trained at facilities of Suzuki so far, and in the total work force, Maruti has around 80+ MBAs, 600+ Graduate Engineers, 200+ Diploma Engineers, and all the workers and technicians require minimum qualification of ITI.
Use of Project based Teams
In view of increasing competition in the automotive sector Maruti has tried to use a project based structure to tackle specific problems effectively. Around two years back in a meeting of middle and senior level executives it was decided to form teams which would focus on specific goals. Around thirty teams comprising or 8 ? 10 members were formed. These teams had specific mandates in terms of cost reduction, new product development and were given resources and authority in order to implement their projects.
For example, one team worked on value analysis and value engineering for specific components for cost reduction. Another team worked on improving the JD Power ratings that Maruti secured for IQS (Initial Quality Service). These teams were working on a high priority and all departments were expected to co-operate. Also they reported to the JDM directly and this helped them to sort out any problems they encountered. The best performing teams were awarded handsomely.
Corporate culture of a company reflects the kind of relationships its employees have with each other and the kind of bonding they feel with the company?s ideal and values. It also reflects the kind of strategy a company follows. Maruti which initially started as a PSU even though in collaboration with an MNC like Suzuki had a bureaucratic culture. A near monopolistic hold on the market made for a free-wheeling work force unconcerned with competition and innovation.
But ever since liberalization and privatization the culture of Maruti has undergone a sea change. A small example will suffice: The day of a Maruti Employee started with signing the attendance register and coming late by half an hour or an hour was not uncommon but now with electronic swipe card based attendance a one minute delay can cost you a day?s salary. Earlier many workers used to come and sign the attendance register and then sub-contract their work to a temporary labor at the rate of around Rs.50 per day as compared to amounts around Rs10000 per month paid to them. With assured employment there was little incentive to contribute towards the well-being of the company. Even MUL employees who used to have a training stint in Japan used to feel frustrated and alienated by the work culture in MUL after finishing their training.
A reflection of this culture was the worker strike which crippled Maruti in 2001. After recovering from the strike Maruti had a perceptible change in culture. A VRS scheme introduced soon afterwards increased the sense of insecurity amongst employees, but it was all for a good cause. A hiked component of variable pay further brought company and employee interests in sync. An interesting ritual of starting the day with a two minute exercise on Japanese music was introduced. Also they have a common uniform and common canteen since the very beginning. So you can really walk into the company canteen and eat with the MD Jagdish Khattar. Now MUL has more of a mission culture with a clear mandate to maintain its market share and act as a small car sourcing hub for Suzuki.
A look at company?s vision statement makes an interesting study. The company?s vision is to be the leader in the Indian automobile industry, creating customer delight and shareholders wealth, a pride of India. After its acquisition by a Japanese company does its vision of being the pride of India? Whosoever said that globalization is not full of ethical dilemmas!
Comparing the culture of Maruti to other companies in India it is most similar to Hyundai and Daewoo in India, companies which have East Asian origins. Lot of stress is laid on team work and treating the company as an extension of one?s family. Innovation is also encouraged an example being the constant innovations in terms of process improvements using quality circles in Maruti. Of late an overtime culture has also slowly made its way into Maruti with the promotions linked to 180° feedback and staying late being used as a tool to signal your dedication and hard work.
At this point it will be interesting to compare and contrast the culture and practices at Maruti and its Japanese parent Suzuki Motor Corporation of Japan.
Organizational Structure and Work Culture at SMC, Japan
A brief description of the Organizational Structure of Suzuki Motor Corporation Japan is given in the form of a block diagram below. SMC is headed by a chairman. The company consists of 8 divisions. These are further divided into subdivisions and departments. Organizational Structure of SMC, Japan is hsown in the appendix.
Differences between Work Culture at Suzuki Motor Corporation Ltd. and Maruti Udyog Ltd.
We interviewed A.B.Sinha, who is Deputy Manager (Engineering) at MUL and has been training for the last two years at Suzuki, Japan. During the course of this interview we discovered several interesting differences in the work culture between MUL and SMC.
?Employment at SMC tends to be a lifelong commitment. This means that neither the company lays off its workers nor the employee leaves the company for employment elsewhere. Hence any new employee joining the company is an important occasion and is celebrated in a series of ceremonial parties.
?The company trusts its employees to a greater extent and the employees in turn respond by being totally devoted to the company. There is no system of monitoring attendance through I cards and no system of punishments. The employees do not use the official telephone for personal calls. Also, there is less conflict and more team spirit. All assignments are given to teams. If one employee is not able to work then the others in his team try to help him.
?There is a strict hierarchy within the organization and the promotions are based on seniority. A Shinjun (entry level) takes 8 years to become a Kakaricho (asst. manager) and 8-10 years after that to become a Kacho (Manager). There is very little rotation between departments.
?There is a higher degree of precision in the planning. Jobs are allocated on an hourly basis. Meetings are short and focused. All employees record their movements on a board so that they can be easily tracked.
?Official timings are from 8:45 AM to 5:30 PM. However, most employees work from 8:45 to 7:00 PM on Wednesdays and from 8:45 AM to 10:00 PM on other days. The number of working days in a year is only 240.
Power and Politics
In MUL the control and power is mostly in the hands of management. During the workers strike in 2000 the management refused to agree to the workers demands. The officers ran the plant by supervising the operations of the plant and hiring contractual labour. This made it difficult for workers to sustain the strike. They had to call off the strike and were in fact forced them to agree to some changes laid down by the management.
The power of Japanese has always been there in an implicit manner. The Japanese have acted as conflict resolvers whenever there have been any conflicts within or between departments. Many times the departments play politics wit other departments by trying to use the referent power available due to closeness with Japanese management. With the increase in stake of Suzuki Motor Corp. the legitimate power of the Japanese management has further increased.
A strategy is a plan for interacting with the competitive environment to achieve organizational goals. Organizations have goals that define where it wants to go and strategies define how it will get there. Strategy is usually one or more competitive actions. It involves choosing whether the organization will perform different activities than its competitors or will execute similar activities more efficiently than its competitors do. The strategic profile of Maruti can be described using the following models:
1.Porter?s competitive strategies: MUL introduced ‘Maruti 800’ in 1983 providing a complete facelift to the Indian car industry. The car was launched as a “People?s car” with a price tag of Rs40, 000. This changed the industry’s profile dramatically. Maruti 800 was well accepted by middle-income families in the country and its sales increased from 1,200 units in FY84 to more than 200,000 units in FY99. Since then, MUL specialized in low-cost leadership. However its focus was not limited to small cars. MUL extended its product range to include vans, multi-utility vehicles (MUVs) and mid-sized cars. Hence it has low-cost leadership with a broad focus according to the framework of porter?s competitive strategy.
2.Miles & Snow?s strategy typology: This framework is based on the idea that managers seek to formulate strategies that will be congruent with the external environment. Organizations strive for a fit among internal organization characteristics, strategy and the external environment. This framework describes four strategies ? the prospector, the defender, the analyzer and the reactor.
Maruti has always maintained stable products with minor innovations aimed improving the utility of products. In 1983, it saw opportunities and innovated by launching Maruti 800. It introduced cars in other segments like mid-car and multi-utility segments. Since then, it maintained stable business for all its brands. Therefore Maruti can be called ?analyzer?, which is a combination of prospector and defender.
Inter Organizational Relationships
Inter organizational relationships are the relatively enduring resource transactions, flows and linkages that occur among two or more organizations. In today?s business environment it is extremely difficult for a firm to do business on its own. Inter organizational relationships play a major part in the success of a firm.
Maruti and Government of India
The Government of India has been a shareholder in Maruti Udyog Ltd. from the beginning. Till a few years ago the Government had a majority stake in Maruti which was reduced recently. At present its share in Maruti is 18.28%.
The relationship between Maruti and government has always involved a third player, the Suzuki Motor Corp. Government has never been involved in day to day working of Maruti. But it had been involved in the strategic decisions in the past. For example introducing new models of cars required the prior approval of Project Approval Board which is under the Ministry of Industry. In 1998 the Government signed a contract with SMC under which the appointment of Chairmen and Managing Directors would be made only after mutual consultation. This was a result of a bitter quarrel between Government and SMC regarding management succession.
InterOrganizational Relationships of Maruti
With a decrease in shareholding the direct involvement of government in Maruti has reduced. But there are many other ways in which the Government decisions affect Maruti. Any changes in the Pollution Emission norms made by the Government have a direct impact on Maruti. Similarly other policies of the government may have a direct or indirect impact on Maruti.
Maruti and Other Auto Makers
For a firm like Maruti the role of inter organizational relationships is extremely important. Fro the time of its inception Suzuki Motor Corporation (SMC) has been involved in the production part of the organization with all the designs being provided by SMC. SMC has recently become the parent company of Maruti with a 51% stake in Maruti. This has enabled Maruti to have even stronger ties with SMC. Also many Japanese managers are a part of Maruti?s Management team.
These kinds of relationships help companies to tide over crises that may occur from time to time. To quote a recent example, Maruti Udyog Ltd has been under pressure to meet the high demand for diesel vehicles, particularly Zen and Esteem in India. To meet this demand Maruti has asked the parent company Suzuki Motor Corporation to find an immediate solution for supply of diesel engines. Following this, the Japanese company is exploring the twin strategy of in-house production and procuring from other manufacturers like Fiat, Opel and Volkswagen.
The above example illustrates how relationships can be built like a chain from one organization to another and so on. The companies which earlier used to adopt an Adversarial relationship have started developing Corroborative networks in order to survive in today?s business environment.