Page 45 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes looked bright. Generations of kids learned how to ride on elegant BSA or Hercules bikes.
A good bike enters the life of a child like a good friend, and many of these kids grew up to
be parents—parents who wanted their kids to ride these bikes.
However, over the 1970s and 1980s, the market for bicycles was changing but TI Cycles
seemingly did not quite understand what was happening. In Ludhiana, Hero Cycles grew
from its origin as a small producer of bicycles to the largest manufacturer of bicycles, right
under the nose of TI Cycles. At the heart of Hero Cycle’s success lay a different value
creating logic. Hero Cycles developed their cycles to meet specific Indian needs. They
designed a cycle that could carry two people plus a heavy load at the cheapest price. They
were not elegant products like BSA or Hercules, but they were designed for farmers to
carry heavy load of vegetables to the village market.
In 1944, four Munjal brothers, headed by Shri Brijmohan Lal Munjal, came to Amritsar
from a small town called Kamalia, now in Pakistan. They decided to start a business of
bicycle spare parts in Amritsar. This business evolved into Hero Cycles. The Munjal
family created a local component infrastructure by inducing friends and family members
to set up ancillary units. They developed a policy of supporting these units with both
funds and technical assistance. Much before Just-in-Time production became popular;
they adopted the system, leading to extremely low costs that allowed them to cut TI
Cycles prices by 15 to 20 per cent even on the cheapest models. Over the years, it became
active in both standard and speciality bike segments. In 1989, it launched Hero ‘Ranger’ to
satisfy the need that TI had overlooked—cycles for peddling on rugged terrain. It created
a new category of Mountain Terrain Bikes (MTB). Hero had further built its market position
by introducing fitness bikes under the brand name Hero ‘Allegro’.
One executive at TI Cycles remarked, “Since our company had started the industry in
India, the general psychology inside TI was that the leadership position would continue
owing to the technical sophistication of the product. Hero Cycles intuitively learned to
make the cycles on its own and offered value for money. It competed on price and tapped
the price conscious segment”.

TI Cycles had failed. Its failure illustrates two facets of the business environment. The first is
the phenomenon called ‘customer disconnect’. This company had fallen so deeply in love
with what it had been that it no longer listened to what its customers and the bicycle market
wanted. TI Cycle’s greatest failure was that it no longer understood its customers’ values.

Secondly, TI Cycles failed to see the disruptive forces that were changing its industry. The
values of its customers were changing. TI Cycles could not fathom the changing values.
New bicycle firms were assembling a wide range of products, often using highly engineered
components made by others. TI Cycles took pride that it made all of its components. It
could not see the merits of buying components from outside suppliers. But the new breed
of cyclists started to buy lower cost bikes through the same marketing channel that
heretofore had sold TI Cycles.

In 1994-95, the family dominated board of directors had to wake up to the problem. The
total loss from operations of TI Cycles was ` 2.98 crores on a sale of ` 208.28 crores. It had
slipped to the number three position in the industry. Its sales in the domestic market had
flattened out. The management had to admit that they needed to totally rethink their
concept of the markets, customers and competitors. They had to change their supply chain
philosophy, and follow a different path.
This led to the initiation of a series of measures at TI Cycles in product development and
manufacturing. In early 1995, TI Cycles introduced the first bike with front shock absorbers

Contd...

40 LOVELY PROFESSIONAL UNIVERSITY