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Strategy For The Mahindra Group Of Companies
Group Transformation And Associated Benefits
Bikramaditya B. Biswas
16th November, 2015
This document lays out the steps needed to boost the group performance by targeted changes to the group holdings and quantifies the projected improvement in results.
Strategy Analysis: Mahindra Group
Summary The Mahindra group is a well-established name in the marketplace and trusted by all stakeholders. However, an impartial assessment also shows that the ‘brand’ still has not achieved the elite (“halo”) status enjoyed by a select few of its peers. While being an ‘old-timer’ validates the groups’ dependability and trustworthiness, it has also defined the kind of businesses it has a presence in, the ones associated with the early stages of any developing nations. Consequently, the group portfolio lacks any contemporary marquee or aspirational name that can supply the necessary ‘oomph’ to elevate the overall group profile, notwithstanding the recent forays into emerging business trends. The group has representation in varied sectors and rightly structured as a conglomerate, even if hampered by the underwhelming performance of a majority of the group companies. For any strategy to be successful and sustainable, the group will have to continue developing offerings that not only attracts an ever-increasing quantum of buyers, while employing tailored business models that ‘ethically’ maximise profits from the said offerings, and motivating all stakeholders to work collaboratively with the company to execute the strategy. The present state analysis shows that the group portfolio is not adequately hedged against market risks and a couple of businesses disproportionately influence the overall performance. There are likely to be opportunities to aggregate various companies in the group, to either enhance synergies or simplify the overall structure. The future glide-path options for the group indicate the need to substantially rework the makeup of businesses it is involved in, to separate itself from the pack and establish itself as one of the beacons of excellence. As shown by the following analysis, continuing on a conservative game plan is substantially suboptimal and the need of the hour is to embrace far-reaching changes. The detailed analysis of the potential future steps to be taken by the group shows the benefits of the changing focus, on all facets of the business performance, while also enabling the group to even better embrace its corporate, social and national responsibilities. Summed up, the Mahindra group is a steady, if unspectacular performer that has the potential of becoming a household name when it starts firing on all cylinders.
Strategy Analysis: Mahindra Group
Background The http://www.mahindra.com/What-We-do page states that:
The Mahindra Group comprises ten business sectors — Aftermarket, Automotive & Farm Equipment, Aero-space and Defence, Financial Services, Hospitality, Information Technology, Real Estate, Two Wheelers and Mahindra Partners — with a presence in 18 industries:
Aerospace, Aftermarket, Agribusiness, Automotive, Components, Construction Equipment, Mahindra Con-sulting Services, Defence, Energy, Mahindra Farm Equipment, Financial Services, Industrial Equipment, Mahindra Information Technology, Leisure & Hospitality, Logistics, Real Estate, Retail and Two Wheelers
Present State Analysis Given the diverse nature of the undertakings, it is unlikely to have a unified/singular vision or mission for the entire group, anecdotally reaffirmed by writings available in the public domain. The next logical step is to establish the existing overlap between the industries to identify the core competen-cies in play, followed by identification of ways to potentially increase the complementary interactions between them.
[In line with benefits of keeping confidential the operating mechanics, not much about collaborative activities between the group businesses is available to external stakeholders.]
Strategy Analysis: Mahindra Group
Individual Business Attractiveness BCG Matrix: Normally conducted for individual / standalone products, but when developed for the businesses making up the group, it throws up an interesting picture of the overall portfolio.
Business Lifecycle Positioning:
While most of the individual business positioning in the BCG Matrix is in accordance with their respective Lifecycle Stages, Introduction East India Ltd., Defence, Education, Media, Industrial Equipment Growth Automotive, Energy, CleanTech, Aerospace, Logistics, Financial Services, Construction
Equipment, Components, Retail, Steel Processing, Leisure/Hospitality Maturity Farm Equipment, Agri, 2-Wheeler, IT, Real Estate, Consulting Decline n/a it doesn’t accurately portray the fundamental opportunities or challenges faced by each of them.
QUESTION MARK STAR
EIL
CleanTech
Defence
Agri-Business
Energy
Aerospace 2-Wheeler
Logistics Financial Services
Construction Equipment
DOG CASH COW
Automotive
Education IT
Media Components
Retail
Steel Processing Leisure/Hospitality
Industrial Equipment
Real Estate Farm Equipment
Consulting
Market Share
Mark
et
Gro
wth
Strategy Analysis: Mahindra Group
Competitive / BCG Advantage Matrix: An alternative and substantially clearer perspective on the individual businesses is achieved by employing this (surprisingly) sparingly used tool,
This analysis highlights a glaring lack of the ‘missing ingredient’, which has a negative influence on the perception stakeholders have of the group, along with some other relatively simpler to fix issues that are. As good as a ‘magic bullet’ or panacea, having a superstar in the line-up casts a favourable projection on the other businesses in the group. i. The ‘Expected’: Most of AFS is a ‘Volume’ business and sales are ‘mostly’ elastic, only marginally linked to
offerings matching prevailing consumer tastes.
ii. The ‘Good’: Even within AFS, only the Automotive and Farm Equipment business enjoy any sizeable com-petitive advantage.
iii. The ‘Bad’: Businesses in the group that have the ability to rise above the pack have not capitalized on the advantages they possess.
iv. The ‘Ugly’: An overwhelming majority of the business are not only in sectors that have limited avenues for differentiation, but also have not maximised the benefits extracted.
Companies languishing in the latter half of the classifications urgently need to update their strategies to build sustainable blue oceans; the few others can afford to be ever so slightly deliberate in their actions.
FRAGMENTED SPECIALIZATION
CleanTech
Financial Services
EIL
Retail Agri-Business
Education Steel Processing
STALEMATE VOLUME
Consulting
Aerospace
Components
IT
Leisure/Hospitality
Real Estate 2-Wheeler
Media Defence
Energy
Logistics Industrial Equipment Automotive
Construction Equipment Farm Equipment
Op
tio
ns t
o C
reate
Ad
van
tag
e /
Dif
fere
ncia
tio
n
Size of Advantage
???
Strategy Analysis: Mahindra Group
Critical Factors Influencing the Group Future
To continue as a preferred partner of the populace and attract an even larger consumer base, the Group will have to get better in anticipating and responding ever faster to market changes, and overcoming any industry disrupters. A crucial factor would be decisions to spinoff individual business, either completely or while retain-ing controlling shares; all subsequent analysis considers the group continuing as a conglomerate without any divesture of businesses. 1. Changes in the automotive industry: AFS provides a significant portion of the group profits, adverse
changes to the market share and/or profitability can severely hamper the financial well-being of the group, taking away the support provided to budding/expanding businesses. Medium Probability / High Impact
2. Creating / Acquiring the group ‘mascot’: The group needs to be represented by a brand that is not only highly successful and a household name, but is also perceived to be a trailblazer; this would also fill the void existing in the ‘Specialization’ classification of the Advantage matrix. Probability TBD / High Impact [If handled properly.]
3. ‘Taking Care’ of businesses in the Fragmented or Stalemate classifications: Just as a pragmatic entrepre-neur won’t initiate a business in a stagnant sector unless it is either a high-margin business or he/she is able to sufficiently differentiate the offering, it behoves the group to either invest in providing incremental advantages to group companies stuck in the rut or to cull them. This has many benefits in addition to not only improving the bottom line, it reassures the general workforce that the group genuinely wants each business to succeed, while also conveying that sustained non-performance won’t be tolerated. Medium Probability / Impact TBD
4. Simplifying / Aggregating: It might be worth a relook into and limit the number of formal verticals maintained by the group, given the nature of businesses involved in. This would also help identify and preclude any acquisition targeted to bolster financials. Probability TBD / Impact TBD
5. Hostile takeover bids: As the domestic consumption keeps rising and Indian brands start gaining traction in external markets, it is likely to attract the attention of foreign entities having large kitties, most likely hedge funds or sovereign funds. Probability TBD / High Impact
6. Workforce demographics changes: Non-availability of competent workforce can hamper the capabilities of any domestic business. High Probability / High Impact
Strategy Analysis: Mahindra Group
(Glide-Paths For) The Group Future
The changing domestic and global markets throws up a plethora of options, presenting opportunities on one hand, while exposing the group to disruptive forces on the other. The group would have to be nimble in not only managing its footprint, but also constantly recalibrate the resource deployment to optimise results and growth. The group options can be broadly classified into three types, 1. Continue with the current reliance on automotive businesses. [Plan C: ‘continue’ as is.] 2. Hedge a bit by strengthening two or three of the businesses. [Plan H: ‘hedge’ slightly.] 3. Reinvent by group by revamping the portfolio and/or industry exposures. [Plan X: ‘Transformation’] While it is ‘convenient’ to maintain status quo and hold course on the current plan, citing familiarity with and stability, this is shown to be fraught with danger. Only a slight rebalancing of the group efforts is unlikely to effectively mitigate these risks well. The future of the group lies in identifying up front the shifting requirements of the populace and government(s), and proactively fulfilling them at the appropriate moments as well {neither too early, nor too late}. Below are projections of the group future states associated with each of the above three (3) options,
1. Plan C
Maintaining the group strategy in its current form is likely to result in a performance depicted by the plots be-low, normalised to a scale of 0-5 for a proper comparison with other players in the respective industries.
A combination of the relative market shares and profitability of the individual sectors shows that the overall performance of the group is expected to significantly lag those of its peers within the next decade itself without appropriate course correction.
Strategy Analysis: Mahindra Group
2. Plan H
Maintaining the group strategy in almost its current form {with only minor changes in resource allocation} is likely to result in a performance depicted by the plots below, normalised to a scale of 0-5 for a proper compar-ison with other players in the respective industries.
As is to be logically expected, only insignificant changes are expected in the performance of the group as a result of any slight modifications, still significantly lagging those of its peers within the next decade itself with-out appropriate significant course correction.
3. Plan X
As seen above, staying the currently charted course is unlikely to be a profitable decision and the group needs to significantly update its portfolio. There is a need to time and align the group transformation with the projected needs of the individual consumers, collectives/groups and government(s). The Top-3 changes needed (no particular order) are:
i. The air/water-craft businesses become part of the defence vertical, which in turn receives heightened attention and .increased resources.
ii. Renewables need to significantly contribute to the success of the AFS, defence and energy verticals. iii. EIL needs to become the flagship retail brand, potentially influencing all B2C transactions.
The next chart shows the best case scenario at 5 years, with a slight realignment of the industry verticals the group is active in at the present time, bar changes to the group holdings. This would have to change to get to the desired status at the end of the decade; the timing of the respective moves will be of utmost criticality to achieve the desired results.
Strategy Analysis: Mahindra Group
The transformation needs to accelerate at this point and the plots below show the progression of changes needed and the results at the end of a decade, normalised to a scale of 0-5.
Strategy Analysis: Mahindra Group
4. Plan X2 [Focused]
Plan X shows what can be achieved by shifting focus to areas that are different than the traditional strengths of the group. Still, there exists opportunity to even better utilise the group efforts by either aggregating the less productive businesses into a holding company or even a complete divesture/spin-off of the same, while retain-ing ‘controlling’ stakes in the same. The resulting group would be better suited to thrive in the future, while also drawing from the business no longer a part of the core business. If this transformation is in place by the fifth year, the ten-year charts should be similar to the projections below.
This last piece of the transformation entails getting into industries [or into segments there of] that the group is inactive in at this time, while maintaining alignment with the group mission.
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