Managing Innovation & Entrepreneurship - Tata Motors - Assignment Example

BMO6622 - Managing Innovation & Entrepreneurship ASSIGNMENT 1 Case Study Introduction In January 2008, the cheapest car in the world made its first debut in India. Tata motors had developed a vision several years back and had build hype for a car that would cost a mere $2500 and bring automotive transportation to the ordinary Indian population. The Nano car has received many nick names including “the people’s car”, “poor man’s car” and “the micro car” to signify its small size and affordability to mainstream people. The initial perception about the Nano car was that, being a basic, small, poor man’s car, it would cause a mere ripple in the automotive market. Nevertheless, Nano car’s tremendous success defies these notions- it represents a radical innovation that will substantially revolutionalize automobile distribution and manufacturing (Aaker & McLoughlin 2010). When launching the car, the CEO of Tata motors stated that “Nano is not just a concept car or a prototype; it is a production car that will roll out of Singur factory and make major changes in the company”. The car incorporates three major innovations that make it huge and superior relative to others. This case study aims at exploring ways in which Tata has managed to develop one of the most innovative automobiles with the least price tag in the world (Juft 2009). Nano car innovation background Profile Indian automotive car Until the dawn of 1980’s, India had few players in the automobile industry with the example of Hindustan motors and Premier automobiles. The industry was a seller’s market with little to no contribution of customers about the choice of models and their prices. Nevertheless, the industry grows immensely each passing year. The 2007 fiscal year marked the peak of growth when the industry grew by over 18% over the previous fiscal years. Cars exported from India comprised of about 13% of the total number of cars exported from the Asian continent. The growth of the Indian auto market was rated the fastest in the world during the 2004 fiscal year. Small cars comprise of the largest section of the Indian auto market, enjoying a nearly 2/3rd of the market share. In addition, the Indian market is the second largest in the sale of small cars behind Japan. However, growth fell drastically to 9% in 2009 and this has not been fully recovered due to the ongoing global financial recession (Rajmanohar 2007). Sales of the automobile industry have shown devastating figures as clear reflection of the detrimental effects of the recession. However, there is prevailing hope for the industry since there are several factors working in its favor. India is blessed with an economically strong working class who are certainly potential customers for the industry in the years to come. Besides that, the Indian has demonstrated considerable stability amidst the tremors of financial meltdown. The workforce in the industry is quite competitive in terms of skills, knowledge and innovations. Much of this optimism roots from appraisals from foreign countries. For instance, the Japanese car industry regards India as the ‘a global car manufacturing hub of the future’ (KPMG 2010). Fig 1: Domestic vehicle volume (annual) vs. Year-on-year growth rates Figure 1 indicates the dynamism of Indian automobile industry in the recent years which has been adversely affected by global economic downturns. Even so, the industry is making tremendous recovery which is a good hope for the Nano. Fig 2: Indian Automobile market 2009-10 domestic sales volume Figure 2 clearly shows that the largest percentage of the Indian population can only afford two wheeled vehicles. This is what prompted Tata to invent the Nano, a highly affordable two wheeled car. Fig 3: Indian domestic sale of personal cars growth The Graph reinforces Tata optimism of a promising future for the Nano. While the Indian market remains cost-conscious, profitable niches are still available for products that meet their specific needs. Advent of Nano The launch of the Nano received a media outburst due to its impressive features and very low price. The New York Times of London reported that “If there was ever symbol of India’s ambition to become the modern nation, it would surely be the Nano, the tiny car with the even tinier price tag” (Thakur 2009). The car is expected to expend the Indian car industry by 65%, create entrepreneurial opportunities and boost the nation’s economy. The car was the vision of the company’s chairman, Ratan Tata, who describes it as the eco-friendly people’s car. Ratan’s vision finally came to reality in 2009 when the car was commercially launched. With a tone of satisfaction, Ratan stated that he had fulfilled his promise of delivering cheapest car in the world. While launching of new products comes along with massive spending in marketing, Nano managed to get free publicity because of the hype associated with its exceptional make (Chang 2008). Innovation strategies for Nano Tata Tata’s strategic innovations of coming up with the cheapest car were not only focused on the product but extended to the company’s thought process. All processes starting from the team formation to the product delivery were all centered on keeping the promise of a high quality car at the lowest price possible that would fulfill the latent demand of the Indian middle class population that could not afford expensive cars. Strategic innovations (Sing 2012) Appointment of a designing and production team that comprised of young and ambitious people with an average age of 28 years. This is because the idea was radical and required fresh thinking about the principles of manufacturing and designing technologies. Tata became a learning organization; it was open to ideas from strategic partners. The company minimized and reinvented the manufacturing process and brought in innovative product designs. With the knowledge that most of the Indian families has two wheeled vehicles but could not afford four wheeled ones, Tata learnt and improved on the design of the Ace truck to come up with the Tata Nano. To ensure an eco-friendly product, Tata has taken one more step in coming up with an electronic version in addition to the initial diesel and petrol variants. To ensure that the company sticks to its promise of the cheapest car, the company sets the retail price before they design the car. Tata trains its employees with exemplary techniques from Japanese and this is done on a continuous basis. Holistic innovation Tata Motors began working with their supplier’s right from the planning process so as to make them aware of the fact the parts were needed for their functional goals and not just their technical specs. The nest strategic thinking that Tata used to cut down on the cost of the Nano was to establish assembly models where imported parts and supplied to the local manufacturers for final assembly. Besides cutting down on capital costs, this practice allowed the company to customize cars in accordance with local customer needs. The entire company worked in union including top management, even Mr. Tata, during the design and planning phases. The input of each individual was considered in coming up with the best design. Producing a very low cost cart meant leaning down the organization in several aspects such as human resources, materials and the manufacturing process. To achieve this, the company learnt lessons from other mass manufacturers such as those in cycle manufacturing. Quality systems were put in place well before commencement of the project such that implementation became easier. They included the maintenance practices and contingency frameworks. This reduced projects breakdown and reduced unexpected challenges that would arise once the actual implementation began. Suppliers were located at the nearest proximity to the manufacturing plants (at least 50kms) to foster just-in-time procurement strategy and cut down on transport costs. Focused innovation The Nano has 21% less interior and 8% less exterior relative to its closest competitor, the Maruti 800. Different versions including the one standard and two deluxe variants will be developed to meet different needs of consumers. In order to maximize interior space, Nano’s engine is rear mounted. It will conform to environmental protection by being subject to emission standards such as the Bharat Stage-III and Euro-IV. The car is regarded as a fuel economy with very little fuel consumption; 20km per liter. With a height of 1.6m, length of 1.5m and 3.1m length the car will be able to comfortable and effortlessly maneuver on the busy cities and highways as well as the rural areas. Besides that, Nano employs a lean design strategy which helps to deliver high fuel efficiency and maximize performance per unit of energy. The safety performance of Nano goes beyond the current regulatory requirements with a strong passenger compartment, tubeless tyres, sheet-metal body and other safety features such as seat belts, intrusion-resistant doors and crumple zone (Tata Nano 2010). In sum, interesting facts which have made the car inexpensive are: Single windscreen wiper Analogue speedometer, fuel gauge and odometer Wheel bearing: which is strong enough to drive the car at 72kmph Rear wheel drive: manually actuated 4-speed trans axle that gives the car better fuel efficiency No power steering, remote locks, air bags, anti lock brakes, air conditioning, power windows or radio Fig 4: Basic design of the Tata Nano car Challenges faced during the development of Tata Cromer & Hodges (2011) note that protests about the safety and reliability of the Nano sprung up immediately the idea was publicized in 2006. Key concerns were congestion, emissions and safety. Nano’s low price was a major concern for environmentalists who felt that this would lead to mass motorization in the country and thus aggravate pollution. Besides that, the Nano has been alleged to have significantly affected the used car market as buyers opt to buy the cheap but new Nano cars rather than used cars that would go for almost the same price (Govindu & Malghan 2009). Other car manufacturers such as Maruti have reported extreme decline in sales following the launch of Nano. Efficiency of Nano’s electrical systems has also been questioned following seven cases where Nano cars had caught fire. With these challenges, the sale of Nano has showed mixed trends since its launch in 2009. The company specifically reported significant decline in sales after the fire accidents as Indian customers to not forgive easily (Beckett & Choudhury 2012). Fig 6: Tata Nano performance vs Automobile industry production (passenger vehicles) Future of Nano Critics contend that Nano’s safety is questionable especially due to its lightness and lack of major safety devices. In addition, it is expected to accelerate the impeding danger of pollution in the region. Nevertheless, the CEO of Tata is optimistic that his highly innovative and ambitious team will soon develop an environmentally friendly model alongside the gasoline model. With the only crash-test facility in the country, Nano promises to bring a fillip to the automobile industry by reducing the rates of car accidents (Arora & Arora 2012). Despite increased liberalization and economic breakthroughs, popularity of automobiles in India has just reached seven per thousand people. The Nano is expected to change these facets as it will be affordable to a large percentage of the population. Besides that, the launch of the Nano has uplifted India’s status in the international arena and the world now esteems its competence in frugal engineering and design values. The Nano will become the perfect substitute for two-wheeled transport which is more convenient, eco-friendly and safer. Nano’s low priced parts will also boost the components manufacturers to the global marketplace. India now has a new opportunity to begin supplying parts to major international car manufacturers. Entry of the Nano has opened up a whole new market that was previously untapped. Its significant impact in the market has consequently prompted competitors to come up with similar models for the middle class segment (Buddiraja 2009). Excise duty for small cars has since reduced from 16-12% since the entry of the Nano into the automobile market. This is good news for companies intending to produce smaller cars such as Hyundai, Maruti and Tata. On the contrary, duty on bigger cars remained at 24% which has created a major disparity in the demand for small and big cars. Growth strategies for Nano Tata growth strategy is product-related whereby its aims at diversifying its products. Its endeavors to design new products based on the needs of the new market. The company has established a sustainable competitive advantage through three major competencies/assets: innovative actions, value creation and costly to imitate. As a company’s culture, Tata intends to expand the growth of Nano through disruptive innovations market expansion, product portfolio expansion, enhancing R&D capability, acquisitions and joint ventures (Jurtkoti & Prabhu 2011). Fig 7: The growth of Tata since 1945-2010 through innovations and active global presence The figure above shows the exponential growth that Tata has demonstrated over the years and it’s a clear indication of the company’s potential to expand the growth of Nano (IBEF 2011). Conclusion The Tata Nano car is clearly a success story of entrepreneurial innovation. By being the cheapest car in the world with impressive and exceptional features, the innovation has left a major landmark in the Indian automobile industry and the world at large. While the vision was solely, Ratan Tata’s the planning, designing planning and implementation was a collaborative effort of all members of the company. This justifies the fundamental role of teamwork in successful entrepreneurial ventures. Development of the Nano was not without its share of challenges, but Tata Motors centered on these challenges to make a better model. The Nano has publicly spoken for itself which reinforces its potential growth in the future. The company’s ambition and efforts will push the innovation to greater heights. References Indian Brand Equity Foundation (IBEF) 2011, Automotives . Retrieved September 9, 2012, from ibef : http://www.ibef.org/download/Automotives50112.pdf Aaker, D., & McLoughlin, G 2010, Strategic market management global perspectives. Chinchester: Chinchester Wiley. Arora, K., & Arora, A 2012, A dream shattered or still a big potentila: A case study of Tata Nano. National Conference on Emerging challenge for sustainable business. Beckett, P., & Choudhury, S 2012, Tata Chairman Assails Nano sales efforts. Retrieved September 9, 2012, from http://online.wsj.com: http://online.wsj.com/article/SB10001424052970203513604577142072569802382.html Buddiraja, S 2009, Case Analysis in marketing management. New Delhi: Tata McGraw Hill. Chang, R 2008, Tata Nano: The world's cheapest car. The New York Time . Cromer, C., & Hodges, S 201, Analysis of the Microcar Market in the United States and India: Impact of macroeconomic forces and cultural values. Journal of Applied business and economics, 12(5) . Govindu, V., & Malghan, D 2009, The Nano and its discontents. Retrieved September 9, 2012, from Tehelka website: http://www.iimb.ernet.in/~dmalghan/files/essays/nano.pdf Juft, G 2009, The micro-car: Tata Nano could chnage how the masses get around: Tiny vehicles costs $2000. Chicago tribune . Jurtkoti, A., & Prabhu, S 2011, Study of satisfaction with reference to Tata Nano Cars customers in Pune city. Retrieved September 9, 2012, from pcmrd website: http://www.pcmrd.org/Documents/Journals/PMRVol10Issue2/PMRVol10Issue2-5.pdf KPMG 2010, The Indian automotive industry: Evolving dynamic. New Delhi: KPMG India. Nano, T 2010, The making of Nano. Retrieved September 9, 2012, from tata review: http://www.tata.com/pdf/tata_review_apr_09/special_feature_tata_nano_arrives.pdf Rajmanohar, T 2007, Indian automotive industry: An introduction. Hyderabad: ICFAI university press. Sing, B 2012, Nano-the people's car. International journal of research in management, 2(2) . Thakur, P 2009, Tata nao: The people's car. New Delhi: Pentagon Press. Read More