Description
This is document describes organization analysis of ELGI equipment.
Organizational Analysis
ELGI EQUIPMENTS LTD.
1
CONTENTS
TOPICS AN INTRODUCTION TO THE ORGANISATION CONDUCIVE FACTORS IDENTIFIED GROWTH OF THE ORGANISATION FACTORS THAT HAVE LED TO ITS EXPANSION AND GROWTH THE FACTORS THAT LED TO THE DECLINE OF THE ORGANISATION CONCLUSION LEARNING FROM THE PROJECT REFERENCES
Page no 2 11 13 17
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22 22 24
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AN INTRODUCTION TO THE ORGANISATION
History Elgi Equipments Ltd. was incorporated as a private limited Company in 1960 and converted into a Public Limited Company in January 1975.
The company manufactured Reciprocating & Screw Type Air -Compressors, Car Washers Hydraulic Hoist, Lubricating Equipment, Pneumatic Horns, Power brakes, & Automatic Pasteurizing Plants for Beer & Soft drink Industry. However, after several phases of restructuring, they now have the divisions consisting of compressors both in reciprocating and rotary form. A separate company has been formed out of the automotive equipments division called ATS-Elgi, and a new division to manufacture custom made machine parts is in place called Manufacturing Equipments Division.
ELGI is the current largest manufacturer of air compressors and automobile service station equipment in Asia. Over the years it has expanded its operations across various countries.
ELGI's products are used in a wide range of applications in areas ranging from mining, defense, transport, pharmaceuticals, power, oil, railways, chemicals, textiles, printing to ship building, paper, electronics, telecommunications, medical, food & beverages and plastics.
3
In fact, starting from the paint on your wall to the car you drive, from the medicines you take to the leather bag you carry, ELGI's products have been used either in their production, maintenance or usage.
Board of Directors
Chairman
Mr.L.G.Varadarajulu
Non Executive Members
1.Mr. N.Mohan Nambiar
2..Dr.T.Balaji Naidu
3.Mr.B.Vijaya Kumar
4.Mr.Sudarshan Varadaraj
5.Dr. Ganesh Devaraj
6.Mr M RamPrasad
Managing Director
Dr.Jairam Varadaraj
4
Organization of the company
A product division structure has been adopted by the company. It is divided into 2 divisionsRotary Screw Compressor Division and the Reciprocating Compressor Division. The Screw Compressor Division is further divided into Electric Powered Screw Air Compressor vertical and Diesel Powered Screw Air Compressors vertical while Reciprocating Compressors Division are divided into Engine Driven and Motor Driven Compressor verticals respectively. Each product division is further functionally subdivided into sales & marketing, production & maintenance, Service, Materials, Commercial & Excise, Research and Development departments. They also have several support functions like quality & reliability, IT, finance and performance engineering and adaptive functions that are known as Technology Development and Vendor Development as well. The functions like sales, marketing and production are subdivided geographically as international and domestic departments. Within these functions they are further subdivided into smaller product teams for the corresponding products or market structure as the case was. The company has a reasonably organic structure with a good degree of decentralization in almost all functions except manufacturing unit. In this division a high degree of mechanization is employed in the production and reliability functions. Employees adhere to the work instructions and Standard Operating Procedures that are given to them.
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Main Stakeholders Markets & Customers The reciprocating compressor division caters mainly to the SME’s and small businesses like garages, petrol pumps, small machine shops, bore well owners as well as a few corporate and industrial clients while the screw compressor division caters to the industry and corporate clients. Their customers are distributed across a variety of sectors such as Textiles, Power, Cement, Steel, Shipyards, Mining, Chemical Processing Plants, and Auto Manufacturers etc Suppliers Many of their suppliers are located in and around Coimbatore with whom they have build long term contracts over the years and developed symbiotic interdepencies. For example, they have a contract with Gem Equipments Ltd which supplies the downstream equipments for the company. Many other components are imported from overseas suppliers as well either because of limited players or for better quality. Workforce The Elgi workforce consists of nearly 1500 employees and shop floor operators. The unique thing about the workforce is that there are no unions formed within the company by the workers. Distributors Elgi has kept a network of distributors across various cities in India and sales offices in major cities in the other countries to reach the customers for their off the shelf products. For larger corporate clients they have direct sales offices in major cities.
10
Core Competencies The company’s core competencies lie in their capability to precision manufacture the compressor blocks which form the main part of their product. For the rest of the components, it decides to buy from vendors outside who are established players in their product line worldwide. They also have shared their research efforts with City University of London, UK to develop patented airend profiles which are used in their product .Thus their Research and Development skills are also a part of their core competency. Culture
The company identifies the following instrumental values- Goal Obsession and Integrity
and the following as their terminal values-Excellence and Leadership.
Each one of these values has specific attributes which the company fosters in the fabric of its culture and performance systems.
These are some of the operational aspects identified by ELGI that directly contribute to their culture:?
An objective system of appraisal, reward and promotions that revolve around the achievement of quality parameters.
?
A system of reality check that scans the environment regularly and ensures that the quality parameters are identified and the system of appraisal is indeed in line with the respective requirement.
11
?
Focus on systematic communication to ensure free, transparent, all round and relevant information flow.
?
Developing leadership qualities to evolve professionals who can handle business and growth opportunities independently.
The company initially had a highly product oriented approach which led to their decline when they started facing competition from multinational players. They changed from this approach to a highly customer oriented approach through the years of restructuring and implementation of new initiatives wherein, all the departments became oriented and sensitized to the importance of giving customer needs and satisfaction the top priority. Also the implementation of Lean philosophy in the workplace has led to awareness in the people to be on constant lookout for opportunities to weed out unnecessary costs and look to make all the systems in the company efficient.
CONDUCIVE FACTORS IDENTIFIED
1. Many of the suppliers for the parts were located in and around Coimbatore where their manufacturing facility is located. There are no other manufacturing facilities of the competitors that exist. This enables them to co-ordinate and work closely with them. 2. The company is located near the textile hub of India, Tirupur on account of which they are able to have a good standing in the textile sector. As Coimbatore is an industrial town many SMEs in and around this place are their regular clients.
12
3. Company started a new department called Vendor Development which works to rationalize the existing basket of suppliers so that they can limit their suppliers and build close relationship with them. They also work with them to improve the manufacturing and quality infrastructure so as to ensure their timely and defect-free supplies. 4.Elgi Manufacturing System-The company started its LEAN Manufacturing initiative with the objective of reducing costs under the name of Elgi Manufacturing Systems .Special cross functional teams within the product divisions meet once a week to minimize costs by integration and coordination. A Lean expert was also appointed to implement various initiatives in production. 5. Elgi Business System-This was a quality initiative with TQM principles aimed at integrating the already existing functional systems and enhance efficiency and effectiveness. Quality subsystems were formed with cross functional teams within the operations area to co-ordinate and improve the quality and on time delivery of the manufactured products. 6. Shop Floor Operator training initiative:-The Company also initiated a training program to build the functional and behavioral competencies of shop floor workers by tying up with PSG College of Technology, so that their skills and knowledge were enhanced to take on thicker roles and greater responsibilities. 475 operators were given 400 hours of engineering fundamental training and 200 hours of behavioral and technical training at PSG College of Technology.
7. HR Initiative:-A concept of locational flexibility was initiated to attract and maintain talent in the managerial cadre. This initiative was done to improve work life balance of the employees so that they could contribute effectively without affecting their personal life.
13
GROWTH OF THE ORGANISATION
Product Growth Elgi today is the largest manufacturer of air compressors and automobile service station equipment. It started as a service station equipment and reciprocating manufacturing company. In the last 4 decades, it has made a continuous effort to develop its technology and pursue new business opportunities. There is a strong focus on R & D activities in the organization. The organization is quick to notice the technological changes and adopt these changes to innovate new products. It is now a multi – Product Company manufacturing about 70 technically superior products in the automobile sector and the compressor segment industry. Going Global Going Global has been ELGI’s motto and vision ever since it was established in 1960.Apart from developing new products; it also aims to be a global leader in all its core products. This was clear even in the initial phase when ELGI manufactured its first compressor in a joint venture with a German firm. The following points highlight the global expansion of ELGI in the last 40 years. 1) The period from the 60s to 80s was marked by sporadic exports to neighboring countries and the countries in South East Asia and the Middle East. During the 80s, the inclusion of new nations saw substantial increase in overseas earnings and by 1985, Elgi was exporting to 22 countries. The bilateral agreement signed between India and USSR during this period was a significant event and resulted in the export operations of Elgi really taking off. The exports to USSR, consisting brought in valuable revenue and lasted till the first half of the 90s.
14
2) The period of 90s was marked by a flurry of activities fuelled by a renewed focus on exports. The business and the manufacturing processes were reshaped and re-tuned to match the international standards. The products were redesigned to cater to international customers in terms of aesthetics and performance. In 1991, Elgi made its entry into the American market by supplying airends to major packagers. 3) It was in the latter half of the 90’s that Elgi made significant strides in the export front. During the period of 94 – 96, the trade opened up between India and South Africa and Elgi was able to make inroads into the market in South Africa. In 1998, Elgi started its office at Dubai to oversee the export operations to the Middle East region and added Saudi Arabia to its list of clients. During the same period, Elgi established its office in Srilanka, where it was fast becoming a dominant player in the automotive equipment segment. The success in automotive equipment segment continued in Nepal too. Elgi witnessed major achievements in the OEM markets of Europe and Japan during the period of 1998 – 2000. It gained entry into Germany and New Zealand by acquiring massive orders. Meanwhile the export operations in other countries progressed ahead and the markets in these nations showed an increased preference for ELGI products. 4) Millennium saw Elgi emerging as a market leader in Nepal and Srilanka in the automotive equipment segment and the markets started showing an increased preference for screw air compressors from Elgi. Encouraged by the success in South East Asia, Elgi started its office in Indonesia in 2001. ELGI’s operations were mostly centered around South- East Asia and America. In the year 2002, Elgi clinched several deals for the first time in Korea, Malaysia, Australia, Taiwan, Nigeria, Kenya, Saudi Arabia and Columbia. In the year 2003, Bhutan, Argentina, Canada, Iran, Egypt, Lebanon. During this period,
15
ELGI received several orders from the Fortune 500 client in USA. ELGI also forayed into the African markets winning deals in Sudan, South Africa, Kenya, Somalia and Ghana.
So from 22 countries in 1985 to over 46 countries in 2004, the evolution of Elgi into a global player has been a remarkable one. Evolution is a continuous process and Elgi is further expanding its presence in the international arena by exploring new markets and consolidating its position in the existing ones. It is this constant evolution that would make Elgi a formidable force in the global market in the coming years
It is very apparent that that ELGI has carved a place for itself in the market dominated by MNCs. The graph shown below shows the market share of ELGI in the year 2008. The total size of the market is 1500 crores. All the figures relate only to segments that ELGI equipments operate in.
Market Share
14 7 14 Kirloskar Pneumatics Others 25 Atlas Copco Elgi Equipments 40 Ingersoll Rand
Fig1. Current Market share of the company vis-à-vis the competitors
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Growth
500 400 300 200 100 0 2004-05 2005-06 2006-07 2007-08 Sales OP Profit
Fig2.Growth of Elgi in the last four years
The above graph depicts the growth of the organization and compares the performance of the ELGI in the last two decades.
The table shown below a consolidated report of the performance of the company in the last two decade. The growth of the organization can be measured by
1) The net worth of the company in 1999-00 was Rs 737.99 million. Whereas in 2008-09 the net worth is Rs 1967.28 million 2) The profit of the company has increased from Rs 59.22 million in 1999-00 to Rs 407.42 in 2008-09. 3) The percentage of the dividends of the company has gradually increased from 30% 199900 to 130% in 2008-09.
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4) The total debts has reduced from Rs 377.58 million in 1999-00 to 0 in 2008-09
Fig 3.Growth of Elgi over 10 years
FACTORS THAT HAVE LED TO ITS EXPANSION AND GROWTH
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1) Shed non – core businesses
In the mid -90s, ELGI examined the growth of the company and realized that it needed a change in strategy. It was present in several unrelated businesses like pasteurizers, bottle washers, wipers, horns, braking systems for trucks. These were neither related nor were profitable. This accounted for 20% of the turnover then. The main core compressor business was small and worse and was very technology dependent. This made the business and the organizational environment more complex. It decided to specialize in one segment of a market and focus all of the organization’s resources on that segment. So the EEL’s management sold and shuttered all the unrelated business and concentrated only on the compressor segment which resulted in a core competency being developed.
2) Clearing Debts
In the mid 90s, ELGI had huge debts of Rs 80 crore due to foraying into unrelated business and having a large workforce. ELGI then took drastic steps to close unrelated business and downsizing the workforce. All the outstanding debts were cleared and ELGI is now a zero debt company. It had debts of Rs 392 million in the year 93-94. It reduced to .08 million in year 2008-2009. Their main focus is to employ a strategy which exploited the functional core competency at low costs
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3) Technology dependent:
Attaining technology independence was very difficult. The market was rapidly shifting to more efficient air compressors and ELGI could only learn the earlier generation technology. They were always behind in the rat race. So in 1995 they started working with City University, London and developed the technology for designing and manufacturing airends. In 2000 they began the commercial production of these airends which came out of this collaboration. This was a significant achievement as very few organizations had the technology to make airends. Had they not got this technology, their profits would have been 40% lesser than what it would have been and their foray into the global market would have been a pipedream.
4) Manufacturing practices: The inefficient manufacturing practices were replaced by a new system ELGI MANUFACTURING SYSTEM. It is a customized blend of Total Quality Management, TPM and Lean manufacturing.
5) Management Practices:
To control and coordinate the flourishing export operation in each Nation, ELGI opened offices in all those nations which it considered as a potential client. There were several Country Managers positions that were created to administer these operations in various
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countries. The company has also been managing its management bandwidth to handle the rapid growth. The management spends a lot of time identifying talent that can push the company’s growth and then ropes them into the company.
6) Product Lifecycle Management : To maximize revenue and minimize costs, ELGI uses Product Lifecycle Management (PLM). PLM is not just a program, it is a process that will help capture the right information to manufacture a product, operate it in the field, and dispose or decommission it at the end of its useful life. It is a knowledge management system that contains the specification and configuration details of all the products. It keeps a track of all the suppliers capabilities and credentials and the employees’ who come up with new product ideas and design changes that generate more revenue and increase customer satisfaction levels.
THE FACTORS THAT LED TO THE DECLINE OF THE ORGANISATION
The company faced a decline in the late 1990’s on account of increased competition from multinational competitors such as Atlas Copco, Ingersollrand and Kaeser entering the market for screw compressors, where they were the standing market leaders till then. This was increasingly changing the market landscape and environment was becoming increasingly poorer as they were
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all vying for the same customers. They were also unable to compete as they were diversified into many product segments like engines and automotive equipments where they were insignificant players. Also unlike the multinational companies, they were unable to enjoy economies of scale as these companies had operations in large no of countries spanning several continents where as Elgi had a presence only in the domestic market with sales offices in a limited no: of countries. Furthermore, increasing costs of operations were also taking a toll on the profitability of the company. They also were not having a competitive advantage as many of the competitors as they did not have a research function which was focused on technology front to deliver new patented technologies and design. On the same front, they were also not having any IT infrastructure like ERP and PLM unlike their competitors which helps in integration of the various functions. Thus, they were increasingly pressed to bring about rapid structural and technological changes in order to survive the competitive onslaught.
CONCLUSION
From this study we can conclude that there were major challenges faced by the company from the external environment especially from their competitors entering the market. The organization adapted and survived these through major changes in their organizational design with respect to their structure and culture which helped them adapt to the forces in the environment. They also went in for building up their symbiotic interdependencies with their suppliers to make it more reliable and long lasting. These changes and initiatives helped them adjusting to the environment and remain competitive.
LEARNING FROM THE PROJECT
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?
Once the company reached a significant share in the market, ELGI was quick to realize that to prevent stagnation and decline the company must venture into new markets. The growth can only come from new markets. Expansion of the market made the company more prepared to meet fluctuations in external and internal factors like shifting economic policies, domestic market slump etc.,
?
ELGI management continuously designs and redesigns its organizational structure to adapt to the changing environmental conditions and also uses resources effectively to develop the core competency. And as the organization grew, the organization chose a structure and the number of levels in hierarchy and adheres to the principle of minimum chain of command.
?
Management used a Focus strategy at the business level- Specialization in one segment of a market, and all of the organization’s resources on the segment
?
ELGI is a knowledge creating organization where innovation is going on at all levels and in all areas. The management constantly encouraged all the employees to come up with new product innovations and entrusted the task of translating these creating ideas into products that will create value for the organization to the team leaders and the managers.
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REFERENCES 1) www.elgi.com 2) http://www.macroaxis.com/invest/market/ELGIEQUIP.NS--symbolMedia--Elgi-
Equipments-Ltd
3) ELGI newsletters 4) Annual report 2008-09 of ELGI Equipments 5) http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ric=ELGE.B
O 6) http://www.thehindubusinessline.com/2006/04/26/stories/2006042600860500.htm 7) http://www.thehindubusinessline.com/2008/11/08/stories/2008110850990200.htm
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doc_134180793.docx
This is document describes organization analysis of ELGI equipment.
Organizational Analysis
ELGI EQUIPMENTS LTD.
1
CONTENTS
TOPICS AN INTRODUCTION TO THE ORGANISATION CONDUCIVE FACTORS IDENTIFIED GROWTH OF THE ORGANISATION FACTORS THAT HAVE LED TO ITS EXPANSION AND GROWTH THE FACTORS THAT LED TO THE DECLINE OF THE ORGANISATION CONCLUSION LEARNING FROM THE PROJECT REFERENCES
Page no 2 11 13 17
20
22 22 24
2
AN INTRODUCTION TO THE ORGANISATION
History Elgi Equipments Ltd. was incorporated as a private limited Company in 1960 and converted into a Public Limited Company in January 1975.
The company manufactured Reciprocating & Screw Type Air -Compressors, Car Washers Hydraulic Hoist, Lubricating Equipment, Pneumatic Horns, Power brakes, & Automatic Pasteurizing Plants for Beer & Soft drink Industry. However, after several phases of restructuring, they now have the divisions consisting of compressors both in reciprocating and rotary form. A separate company has been formed out of the automotive equipments division called ATS-Elgi, and a new division to manufacture custom made machine parts is in place called Manufacturing Equipments Division.
ELGI is the current largest manufacturer of air compressors and automobile service station equipment in Asia. Over the years it has expanded its operations across various countries.
ELGI's products are used in a wide range of applications in areas ranging from mining, defense, transport, pharmaceuticals, power, oil, railways, chemicals, textiles, printing to ship building, paper, electronics, telecommunications, medical, food & beverages and plastics.
3
In fact, starting from the paint on your wall to the car you drive, from the medicines you take to the leather bag you carry, ELGI's products have been used either in their production, maintenance or usage.
Board of Directors
Chairman
Mr.L.G.Varadarajulu
Non Executive Members
1.Mr. N.Mohan Nambiar
2..Dr.T.Balaji Naidu
3.Mr.B.Vijaya Kumar
4.Mr.Sudarshan Varadaraj
5.Dr. Ganesh Devaraj
6.Mr M RamPrasad
Managing Director
Dr.Jairam Varadaraj
4
Organization of the company
A product division structure has been adopted by the company. It is divided into 2 divisionsRotary Screw Compressor Division and the Reciprocating Compressor Division. The Screw Compressor Division is further divided into Electric Powered Screw Air Compressor vertical and Diesel Powered Screw Air Compressors vertical while Reciprocating Compressors Division are divided into Engine Driven and Motor Driven Compressor verticals respectively. Each product division is further functionally subdivided into sales & marketing, production & maintenance, Service, Materials, Commercial & Excise, Research and Development departments. They also have several support functions like quality & reliability, IT, finance and performance engineering and adaptive functions that are known as Technology Development and Vendor Development as well. The functions like sales, marketing and production are subdivided geographically as international and domestic departments. Within these functions they are further subdivided into smaller product teams for the corresponding products or market structure as the case was. The company has a reasonably organic structure with a good degree of decentralization in almost all functions except manufacturing unit. In this division a high degree of mechanization is employed in the production and reliability functions. Employees adhere to the work instructions and Standard Operating Procedures that are given to them.
5
6
7
8
9
Main Stakeholders Markets & Customers The reciprocating compressor division caters mainly to the SME’s and small businesses like garages, petrol pumps, small machine shops, bore well owners as well as a few corporate and industrial clients while the screw compressor division caters to the industry and corporate clients. Their customers are distributed across a variety of sectors such as Textiles, Power, Cement, Steel, Shipyards, Mining, Chemical Processing Plants, and Auto Manufacturers etc Suppliers Many of their suppliers are located in and around Coimbatore with whom they have build long term contracts over the years and developed symbiotic interdepencies. For example, they have a contract with Gem Equipments Ltd which supplies the downstream equipments for the company. Many other components are imported from overseas suppliers as well either because of limited players or for better quality. Workforce The Elgi workforce consists of nearly 1500 employees and shop floor operators. The unique thing about the workforce is that there are no unions formed within the company by the workers. Distributors Elgi has kept a network of distributors across various cities in India and sales offices in major cities in the other countries to reach the customers for their off the shelf products. For larger corporate clients they have direct sales offices in major cities.
10
Core Competencies The company’s core competencies lie in their capability to precision manufacture the compressor blocks which form the main part of their product. For the rest of the components, it decides to buy from vendors outside who are established players in their product line worldwide. They also have shared their research efforts with City University of London, UK to develop patented airend profiles which are used in their product .Thus their Research and Development skills are also a part of their core competency. Culture
The company identifies the following instrumental values- Goal Obsession and Integrity
and the following as their terminal values-Excellence and Leadership.
Each one of these values has specific attributes which the company fosters in the fabric of its culture and performance systems.
These are some of the operational aspects identified by ELGI that directly contribute to their culture:?
An objective system of appraisal, reward and promotions that revolve around the achievement of quality parameters.
?
A system of reality check that scans the environment regularly and ensures that the quality parameters are identified and the system of appraisal is indeed in line with the respective requirement.
11
?
Focus on systematic communication to ensure free, transparent, all round and relevant information flow.
?
Developing leadership qualities to evolve professionals who can handle business and growth opportunities independently.
The company initially had a highly product oriented approach which led to their decline when they started facing competition from multinational players. They changed from this approach to a highly customer oriented approach through the years of restructuring and implementation of new initiatives wherein, all the departments became oriented and sensitized to the importance of giving customer needs and satisfaction the top priority. Also the implementation of Lean philosophy in the workplace has led to awareness in the people to be on constant lookout for opportunities to weed out unnecessary costs and look to make all the systems in the company efficient.
CONDUCIVE FACTORS IDENTIFIED
1. Many of the suppliers for the parts were located in and around Coimbatore where their manufacturing facility is located. There are no other manufacturing facilities of the competitors that exist. This enables them to co-ordinate and work closely with them. 2. The company is located near the textile hub of India, Tirupur on account of which they are able to have a good standing in the textile sector. As Coimbatore is an industrial town many SMEs in and around this place are their regular clients.
12
3. Company started a new department called Vendor Development which works to rationalize the existing basket of suppliers so that they can limit their suppliers and build close relationship with them. They also work with them to improve the manufacturing and quality infrastructure so as to ensure their timely and defect-free supplies. 4.Elgi Manufacturing System-The company started its LEAN Manufacturing initiative with the objective of reducing costs under the name of Elgi Manufacturing Systems .Special cross functional teams within the product divisions meet once a week to minimize costs by integration and coordination. A Lean expert was also appointed to implement various initiatives in production. 5. Elgi Business System-This was a quality initiative with TQM principles aimed at integrating the already existing functional systems and enhance efficiency and effectiveness. Quality subsystems were formed with cross functional teams within the operations area to co-ordinate and improve the quality and on time delivery of the manufactured products. 6. Shop Floor Operator training initiative:-The Company also initiated a training program to build the functional and behavioral competencies of shop floor workers by tying up with PSG College of Technology, so that their skills and knowledge were enhanced to take on thicker roles and greater responsibilities. 475 operators were given 400 hours of engineering fundamental training and 200 hours of behavioral and technical training at PSG College of Technology.
7. HR Initiative:-A concept of locational flexibility was initiated to attract and maintain talent in the managerial cadre. This initiative was done to improve work life balance of the employees so that they could contribute effectively without affecting their personal life.
13
GROWTH OF THE ORGANISATION
Product Growth Elgi today is the largest manufacturer of air compressors and automobile service station equipment. It started as a service station equipment and reciprocating manufacturing company. In the last 4 decades, it has made a continuous effort to develop its technology and pursue new business opportunities. There is a strong focus on R & D activities in the organization. The organization is quick to notice the technological changes and adopt these changes to innovate new products. It is now a multi – Product Company manufacturing about 70 technically superior products in the automobile sector and the compressor segment industry. Going Global Going Global has been ELGI’s motto and vision ever since it was established in 1960.Apart from developing new products; it also aims to be a global leader in all its core products. This was clear even in the initial phase when ELGI manufactured its first compressor in a joint venture with a German firm. The following points highlight the global expansion of ELGI in the last 40 years. 1) The period from the 60s to 80s was marked by sporadic exports to neighboring countries and the countries in South East Asia and the Middle East. During the 80s, the inclusion of new nations saw substantial increase in overseas earnings and by 1985, Elgi was exporting to 22 countries. The bilateral agreement signed between India and USSR during this period was a significant event and resulted in the export operations of Elgi really taking off. The exports to USSR, consisting brought in valuable revenue and lasted till the first half of the 90s.
14
2) The period of 90s was marked by a flurry of activities fuelled by a renewed focus on exports. The business and the manufacturing processes were reshaped and re-tuned to match the international standards. The products were redesigned to cater to international customers in terms of aesthetics and performance. In 1991, Elgi made its entry into the American market by supplying airends to major packagers. 3) It was in the latter half of the 90’s that Elgi made significant strides in the export front. During the period of 94 – 96, the trade opened up between India and South Africa and Elgi was able to make inroads into the market in South Africa. In 1998, Elgi started its office at Dubai to oversee the export operations to the Middle East region and added Saudi Arabia to its list of clients. During the same period, Elgi established its office in Srilanka, where it was fast becoming a dominant player in the automotive equipment segment. The success in automotive equipment segment continued in Nepal too. Elgi witnessed major achievements in the OEM markets of Europe and Japan during the period of 1998 – 2000. It gained entry into Germany and New Zealand by acquiring massive orders. Meanwhile the export operations in other countries progressed ahead and the markets in these nations showed an increased preference for ELGI products. 4) Millennium saw Elgi emerging as a market leader in Nepal and Srilanka in the automotive equipment segment and the markets started showing an increased preference for screw air compressors from Elgi. Encouraged by the success in South East Asia, Elgi started its office in Indonesia in 2001. ELGI’s operations were mostly centered around South- East Asia and America. In the year 2002, Elgi clinched several deals for the first time in Korea, Malaysia, Australia, Taiwan, Nigeria, Kenya, Saudi Arabia and Columbia. In the year 2003, Bhutan, Argentina, Canada, Iran, Egypt, Lebanon. During this period,
15
ELGI received several orders from the Fortune 500 client in USA. ELGI also forayed into the African markets winning deals in Sudan, South Africa, Kenya, Somalia and Ghana.
So from 22 countries in 1985 to over 46 countries in 2004, the evolution of Elgi into a global player has been a remarkable one. Evolution is a continuous process and Elgi is further expanding its presence in the international arena by exploring new markets and consolidating its position in the existing ones. It is this constant evolution that would make Elgi a formidable force in the global market in the coming years
It is very apparent that that ELGI has carved a place for itself in the market dominated by MNCs. The graph shown below shows the market share of ELGI in the year 2008. The total size of the market is 1500 crores. All the figures relate only to segments that ELGI equipments operate in.
Market Share
14 7 14 Kirloskar Pneumatics Others 25 Atlas Copco Elgi Equipments 40 Ingersoll Rand
Fig1. Current Market share of the company vis-à-vis the competitors
16
Growth
500 400 300 200 100 0 2004-05 2005-06 2006-07 2007-08 Sales OP Profit
Fig2.Growth of Elgi in the last four years
The above graph depicts the growth of the organization and compares the performance of the ELGI in the last two decades.
The table shown below a consolidated report of the performance of the company in the last two decade. The growth of the organization can be measured by
1) The net worth of the company in 1999-00 was Rs 737.99 million. Whereas in 2008-09 the net worth is Rs 1967.28 million 2) The profit of the company has increased from Rs 59.22 million in 1999-00 to Rs 407.42 in 2008-09. 3) The percentage of the dividends of the company has gradually increased from 30% 199900 to 130% in 2008-09.
17
4) The total debts has reduced from Rs 377.58 million in 1999-00 to 0 in 2008-09
Fig 3.Growth of Elgi over 10 years
FACTORS THAT HAVE LED TO ITS EXPANSION AND GROWTH
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1) Shed non – core businesses
In the mid -90s, ELGI examined the growth of the company and realized that it needed a change in strategy. It was present in several unrelated businesses like pasteurizers, bottle washers, wipers, horns, braking systems for trucks. These were neither related nor were profitable. This accounted for 20% of the turnover then. The main core compressor business was small and worse and was very technology dependent. This made the business and the organizational environment more complex. It decided to specialize in one segment of a market and focus all of the organization’s resources on that segment. So the EEL’s management sold and shuttered all the unrelated business and concentrated only on the compressor segment which resulted in a core competency being developed.
2) Clearing Debts
In the mid 90s, ELGI had huge debts of Rs 80 crore due to foraying into unrelated business and having a large workforce. ELGI then took drastic steps to close unrelated business and downsizing the workforce. All the outstanding debts were cleared and ELGI is now a zero debt company. It had debts of Rs 392 million in the year 93-94. It reduced to .08 million in year 2008-2009. Their main focus is to employ a strategy which exploited the functional core competency at low costs
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3) Technology dependent:
Attaining technology independence was very difficult. The market was rapidly shifting to more efficient air compressors and ELGI could only learn the earlier generation technology. They were always behind in the rat race. So in 1995 they started working with City University, London and developed the technology for designing and manufacturing airends. In 2000 they began the commercial production of these airends which came out of this collaboration. This was a significant achievement as very few organizations had the technology to make airends. Had they not got this technology, their profits would have been 40% lesser than what it would have been and their foray into the global market would have been a pipedream.
4) Manufacturing practices: The inefficient manufacturing practices were replaced by a new system ELGI MANUFACTURING SYSTEM. It is a customized blend of Total Quality Management, TPM and Lean manufacturing.
5) Management Practices:
To control and coordinate the flourishing export operation in each Nation, ELGI opened offices in all those nations which it considered as a potential client. There were several Country Managers positions that were created to administer these operations in various
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countries. The company has also been managing its management bandwidth to handle the rapid growth. The management spends a lot of time identifying talent that can push the company’s growth and then ropes them into the company.
6) Product Lifecycle Management : To maximize revenue and minimize costs, ELGI uses Product Lifecycle Management (PLM). PLM is not just a program, it is a process that will help capture the right information to manufacture a product, operate it in the field, and dispose or decommission it at the end of its useful life. It is a knowledge management system that contains the specification and configuration details of all the products. It keeps a track of all the suppliers capabilities and credentials and the employees’ who come up with new product ideas and design changes that generate more revenue and increase customer satisfaction levels.
THE FACTORS THAT LED TO THE DECLINE OF THE ORGANISATION
The company faced a decline in the late 1990’s on account of increased competition from multinational competitors such as Atlas Copco, Ingersollrand and Kaeser entering the market for screw compressors, where they were the standing market leaders till then. This was increasingly changing the market landscape and environment was becoming increasingly poorer as they were
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all vying for the same customers. They were also unable to compete as they were diversified into many product segments like engines and automotive equipments where they were insignificant players. Also unlike the multinational companies, they were unable to enjoy economies of scale as these companies had operations in large no of countries spanning several continents where as Elgi had a presence only in the domestic market with sales offices in a limited no: of countries. Furthermore, increasing costs of operations were also taking a toll on the profitability of the company. They also were not having a competitive advantage as many of the competitors as they did not have a research function which was focused on technology front to deliver new patented technologies and design. On the same front, they were also not having any IT infrastructure like ERP and PLM unlike their competitors which helps in integration of the various functions. Thus, they were increasingly pressed to bring about rapid structural and technological changes in order to survive the competitive onslaught.
CONCLUSION
From this study we can conclude that there were major challenges faced by the company from the external environment especially from their competitors entering the market. The organization adapted and survived these through major changes in their organizational design with respect to their structure and culture which helped them adapt to the forces in the environment. They also went in for building up their symbiotic interdependencies with their suppliers to make it more reliable and long lasting. These changes and initiatives helped them adjusting to the environment and remain competitive.
LEARNING FROM THE PROJECT
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Once the company reached a significant share in the market, ELGI was quick to realize that to prevent stagnation and decline the company must venture into new markets. The growth can only come from new markets. Expansion of the market made the company more prepared to meet fluctuations in external and internal factors like shifting economic policies, domestic market slump etc.,
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ELGI management continuously designs and redesigns its organizational structure to adapt to the changing environmental conditions and also uses resources effectively to develop the core competency. And as the organization grew, the organization chose a structure and the number of levels in hierarchy and adheres to the principle of minimum chain of command.
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Management used a Focus strategy at the business level- Specialization in one segment of a market, and all of the organization’s resources on the segment
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ELGI is a knowledge creating organization where innovation is going on at all levels and in all areas. The management constantly encouraged all the employees to come up with new product innovations and entrusted the task of translating these creating ideas into products that will create value for the organization to the team leaders and the managers.
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REFERENCES 1) www.elgi.com 2) http://www.macroaxis.com/invest/market/ELGIEQUIP.NS--symbolMedia--Elgi-
Equipments-Ltd
3) ELGI newsletters 4) Annual report 2008-09 of ELGI Equipments 5) http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ric=ELGE.B
O 6) http://www.thehindubusinessline.com/2006/04/26/stories/2006042600860500.htm 7) http://www.thehindubusinessline.com/2008/11/08/stories/2008110850990200.htm
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