Maruti Suzuki Chairman RC Bhargava reveals the key to managing workers in manufacturing

Workers were 60-70%, had been looked upon as adversaries to the owners of the company. If the workers became part of the whole production team of the company, then there would be a huge increase in the productivity and efficiency. Management then worked out the system by which they flipped the whole thing, and instead of workers and the unions being opponents, actually became partners with the management in the company. There are companies who think that having an attendance of 85% is good. Now I think Maruti is touching 90 plus. We are 97. 97% attendance, unheard of. Our people actually work for the full 8 hours of the shift minus 15 minutes, which is the tea break. So 7 hours 45 minutes actual working time. Now if you compare 7 hours 45 with, let's say, 6 hours, that's a good 20% improvement in production. How do I make this happen? So the biggest change which is required is in...

Well, let me put it to you this way, Satya. The Western management practices developed in a number of countries at a time when there was very little competition, either within the country or between countries, and it was more or less all protected markets. There was little international trade. There were no bilateral or multilateral arrangements for regulating international trade, and the system worked well because essentially competition requires you to maximize your efficiency, to maximize your output with minimum inputs. There was no compulsion to do that. The same thing was true of India for a long time because we were a very closed market, and our policy was guided towards self-sufficiency and making ourselves independent of external trade. All that has changed, and it is obvious now that not only do we have to compete strongly with people within the country, but if we are going to get our manufacturing growth changing from 14, 15, 16% to 25%, international trade has to play a major part, which means competition. Because all countries in the world today are doing their best to grow their manufacturing industry and to get as large a share of the global market as possible, which means more and more competition. All the evidence of the last 40 years, 50 years, from when competition has developed, shows that the Western manufacturing practices have failed to be successful when pitted against what was developed in Japan and what has been happening in the more authoritarian kind of regimes in the East. And the need for change therefore arises that if India is to grow the rate of manufacturing growth and get into double figures, and get into 14, 15% annual increases, it has to become far more competitive. The question therefore is that can we become competitive with the existing system? My answer is that why did Japan change and develop a new manufacturing system? Because after the war they realized that all the other inputs of manufacturing, whether it was raw materials or machines and things, were more or less at the same cost as anybody else would get. The only thing which was different and which could make a difference to manufacturing in Japan compared to other countries was their human resources. Could they maximize the output from their human beings so that they could actually overcome all their other disadvantages of not having raw materials and energy and still become more competitive? And the Japanese management system, as it evolved, was essentially based on this need for maximizing the output using human resources and getting maximum efficiency in the whole system thereby.

Yes, I think it comes down to that ultimately because in any manufacturing company, normally about 60 to 70% of total employees are workers, and the rest are the supervisors and the young managers and the senior management. The Western management practices have always been managed in a way, if I may put it, where the workers, who are 60-70%, have been looked upon as adversaries to the owners of the company and the management, and the total human resources in a company are actually divided into two in terms of management and workers. Workers form unions because they need more bargaining strength. Now what are the implications of this? We have seen that this system firstly leads frequently — not so much now, but it used to lead frequently — to industrial relations problems. We've had a lot of it in our history: strikes, lockouts, sit-downs, gheraos, even violence. Now all of that ultimately takes a toll on the working efficiency of the company. Output comes down, costs go up, the customers are unhappy because there is disruption of supplies, all that kind of thing happens. That's one part of it. The second part of it is that the workers themselves do not feel that they are part of the company. They feel that they have to work for their 8 hours a day for which they are paid a certain salary which they have negotiated, and as long as they keep doing what they have to do or what they are told to do over those 8 hours, they're fine. They do not look upon it as part of their responsibility to see how to do their work more efficiently or get more output out of these eight hours. In fact, if you remember, a lot of wage negotiations centered around what should be the hourly production or the daily production. The workers wanted to reduce it. The management wanted to increase. It's still on in many companies. Yeah, so there's no common objective of growing the company. So the third thing is therefore that workers need to be policed, in a sense, that they come in time, that they work when they're supposed to work, they don't go off and take some cigarette time or something else, the lunch breaks becoming much bigger than intended. There is no need for the workers to at all bother that if they do work, are they doing it as well as it should be done so that defects and quality problems are minimized, if not eliminated. They don't do that because they just have to do something. There's always a department of inspection and department of quality control, and those are the guys who do that work. So the worker is not responsible for that either, all of which adds to the cost of manufacturing. The workers take a lot of leave, which is allowed under the law, and the attendance levels in companies are what, 85%, 87%, something like that. Within the company itself, the working hours — actual productive working hours — instead of being the full 7 and a half hours in a shift, rarely go beyond 6 and a half hours or so, because something breaks down or some tool is missing or some supply is not there, and the workers are not interested in taking the initiative and getting that deficiency remedied. So all of that leads to lower output. Now the Japanese realized that — I'm talking of 1950 now — that if all these deficiencies could be overcome, and if the workers became part of the whole production team of the company and were actually convinced that being part of the company would be of benefit to them, then there would be a huge increase in the productivity and efficiency of what was being done in the company. And that seemed to the Japanese to be the only way in which they could overcome their other resource and energy deficiencies, and that's where the management then worked out the system by which they flipped the whole thing, and instead of workers and the unions being opponents, actually became partners of the management in the company. When we started Maruti, we were in somewhat of a similar situation. Everyone everywhere, including in Japan and the rest of the automobile industry, gave Maruti no chance of success. It was supposed to be a political project. Cars were a taboo project in the socialist system. Market was 35, 40,000 cars a year. Where was 100,000 cars going to be sold, and that too produced by a public sector company? So we had really no way that if we continued with business as usual and did what everybody else was doing, we would have, I think, zero chance of success. And that's where Mr. Suzuki and Mr. Krishnamurthy and I felt that we had to do something different. And the different obviously was what was before us in Japan, where Japan had turned round a seemingly hopeless situation into a highly winning situation by creating this total partnership in the company. And that's what we did in Maruti. And surprisingly, as you know, we succeeded in changing the attitudes of the workers, and they became partners with us, and you've seen the result of where Maruti, instead of being a failure, has become one of the greatest wealth creators in the country.

See, why did Japan do what they did and why did Maruti do what it did? Both of us did what we did because we were faced with a situation that if we did not change, we would go under. Now most of Indian industry and most of the promoters and the capitalists don't feel that they are in any risk of going under. None of them are losing their businesses. Competition still is not that strong, and now you're seeing some push back from the government as to when FDIs and others were proposed, there was a great objection from industry that no, don't reduce duties because it would hurt us. So Indian industry has always wanted a certain element of protection. With that element of protection, they have been in a reasonable comfort zone so that they didn't feel threatened at all. Even now I don't think they will really be threatened.

The need for change is not really because I think businesses are going to feel the threat of somebody coming and wiping them out because they have a much more efficient company, because it's not happened. It's not likely to happen. Why should they do it? The only reason today why I'm saying we need to do it is what you started by saying, that we have a national goal of becoming a developed country by 2047. The present government and the present Prime Minister have clearly shown that they understand the issues relating to competitive manufacturing and the importance of manufacturing far, far better than any government has done in the past. A lot of reforms have happened, a lot of changes have happened. Government is receptive to hearing how to make it easier to do business. So government is fully behind industry, I think, for the first time in our lives, in trying to promote manufacturing because it wants manufacturing to become a much bigger contributor to the national development targets. Industry has to realize or think whether they want to play that role or not.

I think the first change is the promoter must genuinely accept that if workers become part of his team, there's a very substantial amount of value which will be added to the company. Not only because you will get the brains of the 60% people, but because of all the negative costs which are associated with policing and an adversarial chunk of people, the layer of supervision, and all of that — attendance and this and that. There are so many indirect costs. Like, for example, in the pharma industry, there's a lot of talk about data integrity, and the workers do a lot of data entry. So if you're not engaged, it impacts on the data itself, and the quality is hugely impacted if the person actually doing the job is not concerned about what he's doing. So I think the promoter has to recognize that there's a huge amount of value to be added. Now he has to then make up his mind that he wants this, actually wants this value add, and that is his first objective. I'm saying this, Satya, because a lot of promoters are quite happy with the amount of money which they are making from their companies today. They lead a life which is comparable to the lives of industrialists in the most developed countries. So there is no feeling that they are being deprived of something which they could get if they had more growth of the company. So there has to be a different mindset, if I may say, or a change in what they want in life. If they want that instead of just making money and leading a life of opulence and luxury, they actually want to become known as one of the biggest manufacturing companies in the globe in India, contribute to the national wealth, become recognized for what they are doing — that's a different kind of approach. So the biggest change which is required is in what is the objective of the entrepreneur. What does he really want in life? Once that happens, then the question which you asked is how does he go about it? The answer is actually not so difficult. I think in all our experience, whether mine or anybody else's, we've seen that unless another person is convinced that what you're asking him to do is in his interest, he will never do it willingly. He may do it because he wants to keep his job, he wants to get his salary, he wants to keep on your right side, all of that. But that involvement in the job will only come if he finds that doing what he is being suggested he should do will actually benefit him. Now, if you think a little bit about workers and industry, the question I have is what creates security of employment for a worker? Obviously the only security of employment of a worker is not the law. It's the company remaining a going organization, which means the company must be competitive, must be profitable, must be able to continue to work in the marketplace without getting run over by other companies. So a worker, if he wants to protect his job in the long term, has a personal interest in his company being competitive. In India, if you get thrown out of a job in a company, let's say in Haryana, where do you go? It's not easy for these guys who still have roots in their villages to pack up and go and settle down in some village in Maharashtra. It can't happen here. So that's one part of it. Second part is that if workers over their career are going to get improvements in their remuneration, in their facilities, let's say in their schooling, in their housing and things, where are the resources from that going to come? The answer is again obvious, that it has to come from the surpluses generated by the company. It cannot come from anywhere else. The days when government used to take over private companies and protect jobs of people or give housing and other things to workers irrespective of whether the company was making a loss or making a profit are gone. It's no longer possible to do that. So the worker has to be dependent on the company's ability to generate surpluses to be able to have any chance of improving his future. Now, having said this, then it becomes quite obvious that actually the health of the company and the progress of the company is a vital interest to the worker. It's not so difficult to convince the worker of this, but convincing him of this is not adequate. I may believe that my resources all come from the company, but if the company keeps generating all these profits and not sharing anything with me, then I'll lose my motivation pretty soon. Why am I doing it? So then the promoter has to realize that if the worker is going to become a part of the company, all his policies and actions of the promoter and the management have to be such as would firstly convince the worker that the management is all serious about growing the company and increasing its profitability and resources. So all your actions must be first company-first. Secondly, that when the company starts increasing its output and profits and things growing, part of the growth benefits will be shared with the workers. Because I will do things to improve the company, if some of that benefit comes to me, I have of course to explain to the worker that all the profits can't be given to them. I have to explain to them how profits are made, where all profits are required to be allocated and why. And it's like opening up the entire P&L and the way you are managing the numbers, have them fully in the picture of what are actually management options and compulsions. There's no reason — if he's a partner in your company, he must also know why you are doing what you're doing. I can't be a partner with you, Satya, if you keep me in the dark, that that's a black box how I manage the company, you don't need to know anything. And how will I know what you're doing? You know, that's a big change.

Originally when we suggested to government, they wouldn't accept it. They said no, the total amount of bonus which can be given to a worker is limited, I think to 24% or something, some figure, I may be wrong in that. And we got stuck. Then they came up with this memorandum of understanding with the public sector companies. In that memorandum, we proposed that we want to have a company-wide productivity-linked bonus scheme without upper cap. What we said was that the project report which you approved and which Suzuki prepared said that maximum output in the company would be 100,000 cars with 4,000 workers, 4,000 employees — so 25 cars. We are proposing that if our output goes beyond 25 per worker, then 75% of the additional labor savings — not first 25 is excluded, that's part of your 25 — 75% of that will be shared by all the employees. It was not any section-wise or product-wise. It's all company-wide because he was emphasizing teamwork. Now government approved this — probably they thought this will not happen, that in no public sector company has output really ever crossed 100%. So even if these guys cross 100%, 25 may go to 28 or 29 or 30, it's okay. They didn't realize that this 25 would go to 75 and more. But ultimately, Satya, the answer is profit sharing.

In a sense, they should be treated like shareholders. And Japan does that, by the way. They don't have all these bonus schemes and things. But here we had to do this because initially if we did profit sharing, it would become very difficult for workers to understand what we were doing. Whereas this output thing they understood very clearly. And hours per worker also they understand clearly. But ultimately the thing should move to profit sharing. Profit sharing along with this, then you also to keep giving some benefits to workers, like I've written in that book about housing and school, and we have a benevolent fund for their employees and things like that. Because there's enough money available if you're doing well to improve their quality of life in general.

See, if you are wanting to create a team, partnership, trust with each other — can you do that if you treat the guy, look, you are something not equal to me in terms of being human beings, that my food needs are better, my clothing needs are better? Can I do that with you? If you look at any team anywhere, is there a differentiation in the team uniform? The captain of the team — it may be Virat Kohli — but Virat Kohli doesn't get anything special on the field. He's like anybody else. He's treated like anybody else. You may be an outstanding performer, but so what? You're still part of the team. The rewards which you get as a team come to you as a team. So while the match is on, everybody is equal. So while you're coming to the workspace, ensure that everybody feels equal, and then there are a lot of hygiene factors that need to be corrected.

I don't see some of the older-time management leaders or big promoters mixing and eating with the workers. We used to eat sitting on the same table as the workers, eating the same food in the same utensils as the workers were eating. Now that's something which you have to do. It's your contribution towards growing the company. Because remember, as the promoter or the manager of the company, you don't expect to get 100% growth in your profit by doing nothing. You also have to contribute in some way to the whole exercise of winning over workers. So I'm not saying that the Maruti way was the only way. It's certainly not the only way. I would say that under the circumstances of each factory, where it is located, what the people are, the promoter and his top management need to find policies and ways of doing things which will actually convince the workers and keep them convinced that management A) is only devoted to the growth of the company and not themselves, and B) the management is sincere in saying that we will be beneficiaries of the growth of the company. And how to make people convinced of this — that's the task of management. They can be — as you've seen, management has many ways of doing things. Even in today's Western style of management, Satya, it's not that all are managed in the same way. In many companies, the owner goes around the shop floor. He knows a large number of workers by their first name. Mr. Keshav Mahindra used to do that. He knew most of the people there on the shop floor. So it creates a different feeling amongst them. So each company has to work out, find out, but provided he has that objective that I have to bring the workers to feel that they are part of the company.

Yeah, a few hours, they came an hour or so before, fired up the furnace, and then also leave, give that a little bit later.

There the worker saw that if we did this, our output per head will increase, so we'll get more money.

Done.

Yeah, because fixed costs have already been taken care of.

That's what happened to Maruti.

Yeah, our capacity of the unit was 100,000 cars a year. We were constantly doing about 140,000 steadily.