Baba Kalyani

What is the outlook for the global economy, as you see it?

Clearly, the global economy now has a far more negative outlook than before. While Asia will continue to grow, those rates may be lower. China will lead the growth in Asia, followed by India. Europe will take the biggest hit. Countries like Germany and France will see low, but positive growth.

Today, the issues concerning most countries are more fundamental in nature. There is a lack of political leadership in most geographies and decision making is taking too much time.

How confident of growth are you in this environment?

Our Indian operations will continue to witness some growth while our group companies in Europe are going to see lower volumes.

How much does the fiscal position of domestic or foreign governments worry you?

Our organisation is too small to get worried about the fiscal position of other governments but it has an impact on the overall economic activity and consumer behaviour leading to lower demand and growth.

What's the one thing the government can do to better support your company?

I don’t want the government to do anything for my company. However, I would like it to create a system that is much more transparent. It also needs to deregulate the entire education system; and especially technical education. And it needs to make decisions faster.

Looking forward, what is the one risk to your growth that you are most concerned about and why? How are you preparing to deal with it?

We learnt several lessons from the financial crisis of 2008 and have put in place a very good strategy to minimise risk. First of all, we have made all our businesses lean so that they can respond to market changes very quickly. This plant (in Mundhwa, Pune) is the world’s largest forging facility and operates at a WIP (work in progress, or in-process inventory) of 11 days. In 2008, the WIP was 40 days. When you are lean, you are able to respond to market changes faster, without incurring heavy costs.

Second, we have opted for a flexible manufacturing system that allows us to increase or decrease operations by 25%, without any issues. We have implemented this in Europe as well.

Third, we have minimised risk by entering new business sectors, including energy, construction equipment, oil and gas, and mining. Most of these businesses are growing, so fluctuations don’t matter much; unlike automotive, where any fluctuation matters a great deal.

Since we operate in multiple geographies – Europe, China, Japan, the US etcetera – we see less risks to our business. Our businesses will grow.

Has your strategy changed over the past year? If yes, then how?

We had put this strategy of de-risking the business in place back in 2005. It was clear to us that we needed a structure that could combat volatility in the global markets. We felt the need for lean manufacturing and flex manufacturing systems then. We strengthened this strategy in 2009, post the financial meltdown and the recession. So nothing has really changed for us on this except we are looking for new opportunities amidst the downturn

Do you anticipate more strategic changes in 2012?

We don’t foresee any change in strategy in 2012 and we are optimistic for the medium to long-term because we are in areas where we see growth.

In what ways is the attractiveness of different countries or regions changing, either for sales or for operations?

For us, every market is attractive: opportunities fall with a downturn and rise with an upswing. And sometimes markets can be strong irrespective of the GDP growth. For instance, North America has been going through the financial crisis but for us, it is a very strong market. It is witnessing growth in commercial vehicles of more than 50% and will continue to grow in 2012. This is due to a (seven-year) commercial vehicle replacement cycle which has created a market for us even though the GDP is not growing.

Are you looking at new markets? What are your criteria for assessing the attractiveness of new markets?

We see some opportunities for us in Latin America but we are not looking at markets like Africa. Africa is a great market for resources and for end-products but it is not suitable for our B2B business. Criteria’s are long term sustainable demand, ability to compete locally and a market for our technologically advanced products leveraging our technology to create a strong position.

What are the most important strategic and operational advantages you need, given the current economic conditions?

Our growth model is based on two to three fundamentals. First, our company’s ability to compete on technology, product and cost: we have created a great deal of focus in our systems on high-technology, high innovation and high quality. These systems create an enduring business. This was the domain of the western world but we have changed that.

The second fundamental is the continuous evaluation of mega-trends in the market. We did that three years ago and found infrastructure, energy and oil and gas to be the clear mega trends in India, so we are participating in those – and we have got into mining commodities too.

For us, automotives is the base business – but it’s also a mega trend in India. My estimate is that in the next 10 years, it will grow to three times the size it is today.

Where are the roads for so many automobiles in India?

The growth will happen irrespective of the development of road infrastructure. You cannot take away an individual’s expression of freedom. Everyone wants a home, a car and a high quality of life. We are now a market-driven economy.

How are you getting to know customer needs in markets that are newer for you? What does that mean for your operations?

Clearly, communication is extremely important in order to know the needs of your customers, and you need to build trust as well. No one opens up to you without that. Every company faces pressures on margins and costs. You need to be open and transparent and communicate these to your customers in the new markets.

Have you exited any markets? Is your approach to how you enter or exit different markets changing in any way?

We have not exited from any markets. In every business, you have to periodically evaluate the new technologies and the margins. It’s more to do with products than markets. In our business, some products become commodities while others become technology. And our focus is on products that require high technology.

How is your approach to managing enterprise-level risk changing?

We address risks rather simply – by balancing our assets and liabilities. For us, this is a natural hedge. We do not get into things that we know nothing about, such as currency. It’s like playing Blackjack. No one can tell you what will happen.

As a group, we are conservative about risk. We don’t make too much of a song and dance about what we do, but Bharat Forge has a most impressive customer list. We have a deleveraged balance sheet, a strong strategy and sound systems to implement it. And we have some very good people working for us in India and abroad.

Is your board becoming more engaged with enterprise risk? How has that affected your planning and operations?

Yes, the board is getting more engaged. It includes professionals such as bankers and lawyers and is a good sounding system. Boards can’t get into operational matters, but yes, they are more focused and are asking more questions on our strategy and the risks to our businesses.

In what ways has your response to environmental or social concerns become an element of your cost reduction, corporate reputation or revenue growth expectations?

We are three years into a plan to be a 100% green company by 2020. This means that we will be using only renewable energy for all our industry needs.

Though there is a capital cost attached to this exercise, our recurring costs will reduce. Post 2020, every product that goes out of our manufacturing units will have a green label on it. This should give us a larger market share as everyone today is concerned about the environment.

On the social front, we are undertaking a lot of CSR work in the area of education. We established the ‘Pratham Pune Education Foundation’ over a decade back. Today, Pratham Pune has touched the lives of nearly 20,000 needy children, ensuring that they get primary education.

Two years ago, we started an Industrial Training Institute (ITI) in Khed in partnership with the Maharashtra government. Today, it is the number one ITI in the country and has benefitted Khed greatly: people are getting jobs that pay INR 15,000 a month. We have also adopted two ITIs in the Pune district with a view to raising their standard of education and infrastructure, and networked with eight engineering colleges in Maharashtra, sending our senior employees to train them. We hire people from these colleges in their third year. Many of our employees do voluntary work in schools. During the downturn, when we had reduced our working days to three a week, 400 of our employees – ranging from engineers to senior managers – went out to teach in schools as volunteers.

How is your approach to innovation changing? Is your focus changing towards more radical innovations?

You can’t change an approach to innovation in one year. To built innovation capabilities you need a minimum of about 15 years. It will take us another five to seven years to become as innovative as companies in the West. But we will get there for sure.

We have been running an M. Tech programme for our employees, in collaboration with the Indian Institute of Technology (IIT) in Bombay for the last three years. This two-year programme is designed to foster academic and research interaction between the two partners.  So far 24 employees have enrolled and we are seeing some results now, with the filing of six to seven patents.

Are innovations coming from different places – perhaps from different geographies, different parts of the organisation or from outside your organisation?

We encourage innovation. We have four to five programmes going on with universities in Europe. Mostly, innovations take place through joint efforts. For instance, our aluminium forging plant in Germany has created a new game-changing technology. While it was developed in Europe, the idea came from company headquarters in Pune.

To what degree can innovations be exported to other markets and to what degree must they be developed in the market?

It will take a little time. India does not have the infrastructure for hard-core innovation. For innovation to happen, we need: people, industry and organisations that believe and invest in innovation; technical universities that partner in innovation; and, most importantly, an ecosystem of technologists and engineers. Silicon Valley is able to come up with innovations because it has the necessary ecosystem.

In what ways has talent become a strategic issue for you?

Talent is the most strategic issue for a country like India. The country is tremendously short on talent. Attrition rates are in double digits. There is a gap between what comes out of technical institutes and what the industry needs.

How are talent challenges different in different markets where you do business?

Europe has the best universities and technical institutes but it has an ageing population. By 2020, it will be very short of talent. Manufacturing talent has now become important to the US, which challenges on that front because it has the education infrastructure to create that talent and a population which is not ageing.

India faces big issues on talent. I believe organisations have to find their own solutions. We run a talent factory of 700 to 800 people here in India and we are working on creating a global talent pool of about 100 people – 60 of them from India and 40 from other countries – so that we can send them anywhere across our operations. We hope to have this talent pool ready within the next three years.

Can you think of an example where you found a new or unexpected source of talent?

Rural India has been an unexpected source of talent for us. We have found the ability of rural Indians to understand issues to be as good as that of people from urban areas. What they lack are soft skills and we are working on bridging that gap.

Do you have well-formed succession plans for senior leadership positions? Do you believe that you are adequately developing the right talent in-house to support your succession planning?

For the last three years we have been running a programme called Masters in Manufacturing Management along with the University of Warwick in the UK. It is designed to give mid-management the leadership skills to move into senior management. Thirty employees – 20 from India and 10 from our subsidiaries – have enrolled on the programme.

Will the leaders of the future look like the leaders of today, from a geographical or cultural perspective? From a gender perspective? What measures are you taking to develop that leadership pipeline?

Well, companies had better learn how to speak Chinese and they had better learn about India. If they don’t, they will face difficult times.

Have you experienced difficulties combining different national cultures into your corporate culture?  How have you solved that?

The biggest factor in integration is a culture of openness. You need to understand people. For instance, the first company we bought was CDP of Germany. Germans want clarity, they expect replies to their emails the same day if not the same hour. To them, not communicating promptly and not turning up for meetings on time is tantamount to a breach of trust. So first you need to bridge such (cultural) gaps. And after that, people are the same everywhere. 

Overall, you need a strong DNA that creates the same value system and a strong belief in goals, aspirations and dreams across the organisation.

What are the challenges and opportunities that younger workers, the millennial generation, bring to your organisation? Does your company need to do anything different to remain attractive to younger workers?

The Millennial generation is far more talented, quicker and far savvier with technology. There has been an explosion in digital technology, in social networking. And companies that take the lead in digital technology will become more attractive to the younger generation.

At Bharat Forge, we have created a department of digital technology. The department is working on a solution using digital media that will provide instant answers to the people working on our shop-floors. We hope to increase efficiency dramatically as a result.

India is also going through demographic change so we have to create an environment that suits the demographics.

In what ways have the allocation of your time and attention changed over the past year?

It has changed. As the organisation grows bigger, you spend more time on futuristic things, on issues, you spend more time on getting intelligence and on networking. You spend less and less time on operations because you have people to do that. This is a normal transition.