9

THE PEOPLE CHALLENGE

‘We may be owned by the government, but we have no intention of running this as a government company.’

Behind this startling statement that opened one of the early circulars Krishnamurthy issued to Maruti’s staff was the acknowledgement that the objectives of the company could not be achieved within the existing hidebound public sector culture and work ethic. This was despite the fact that he was recognized as one of the most successful managers in the public sector, having turned around BHEL in the 1970s, making it into a highly profitable company. But it was this very experience that made him aware that BHEL had many weaknesses and could not be said to have attained excellence, if measured against international standards.

In the 1980s, even the Indian private sector, sheltered from competition, was lagging far behind international standards of performance. Over the years, a culture had developed in which the shop-floor workers—who form the bulk of the employees in the manufacturing industry—did not identify their careers and prosperity with the company and its performance. Trade unions had their own agenda and objectives, mostly political, and in conflict with the growth of productivity, better quality and competitiveness of the company. The management’s commitment to placing the interests of the company above their personal interests also lacked credibility, leading to distrust and strongly adversarial relations between management and workers. In the absence of visible management commitment to the company, a large section of the supervisors, executives and managers also did not have complete commitment to the company.

The result was that the energies of different segments of employees did not converge in propelling the company forward. Instead, they often cancelled each other out. What India was experiencing in the 1980s was similar to what Japan had faced in the early 1950s. In Japan, however, the government and industry realized the need to work together to usher in a new, highly productive, work culture. In India, the socialist governments did not trust the private sector, decried the profit motive and believed that the public sector and a controlled private sector would usher in industrialization.

Suzuki understood this situation. He had first-hand experience of a similar work culture, in Pakistan, where SMC was making cars in partnership with the government. Production would come to a halt several times a day when the workers broke for prayers. There was little concern for punctuality and discipline. Productivity and quality levels were below his expectations. He thought that things might not be very different in India, though he hoped that given the multi-cultural society in India, it might be possible to introduce a better work culture. So when Krishnamurthy and I had our first detailed meeting with him at Hamamatsu in 1982, and conveyed to him that Maruti should attain the quality and productivity levels of SMC, he agreed to help the company achieve this objective, provided that his advice was followed on all matters. We promised to do so.

The Maruti top management was eager to understand why the Japanese industry had become so highly competitive, despite the fact that most of the raw materials, including energy, had to be imported. At that time, the popular belief in India was that Japan was subsidizing its exports. Nobody believed that costs of production could actually be much lower than in India, or elsewhere. However, as the volume of Japanese exports grew, it became obvious that subsidies on that scale were not feasible.

A visit to Japanese factories highlighted the enormous difference in productivity levels with India. The Japanese had brought about a complete transformation in the relations between a company and its employees, with the workers being as committed to the company’s welfare as the management. As a result, every employee was fully involved in enhancing quality and productivity, reducing costs and finding ways to make improvements in all activities. We realized that in fact the costs of production in Japan were very much lower than what all of us believed was possible. While all management books emphasized the importance of human resources in achieving excellence, and most managements paid lip service to this concept, the Japanese had found a way to actually make it happen. We realized that if Maruti were to attain a performance level different from PSUs and even private industry, we would have to follow the Japanese route to excellence. We were also aware that we could set new norms of performance and systems of functioning, since Maruti was starting from scratch and was, therefore, free from the baggage of existing practices.

Suzuki made it plain from his very first visit to India that he meant business. The project was discussed in detail, including the manpower needed, particularly in the production areas. Maruti had provided a leave reserve of 15 per cent of the manpower required for different departments. This was the usual practice in the government and PSUs. Private industry also kept a leave reserve. The various kinds of leave entitlements in India added up to much more than 15 per cent, and the leave reserve was to fill the vacancies of those who went on leave. Suzuki did not accept this system, and pointed out that the level of absenteeism in Japan was only about 3 per cent. Employees took their vacations during block closures of the company for preventive maintenance or during the ‘golden week’ (an eight-to ten-day shutdown across most industries and businesses from the end of April to around 5 May, which coincides with a number of Japanese national holidays). He wanted Maruti to bring down absenteeism to 5 per cent or less. Two preventive maintenance closures would also take place in Maruti and employees could go on holiday then. The need for change, he explained, was not just the cost of employing the extra manpower. The absence of a regular worker would affect both quality and productivity, as the substitute would never be able to achieve the same standards, lacking the training or the experience of the person he was replacing. The leave reserve employees would be rotating, for short periods, between a variety of jobs and so could not be expected to learn to do any job as well as a worker who was doing that job on a regular basis.

Suzuki also proposed much higher norms of machine utilization than what was generally achieved in India. For him, an eight-hour shift meant that the machine had to operate productively for that period of time. He did not accept the practice prevailing in India under which a worker was deemed to have arrived on time for his shift if he entered the factory gate at the time the shift was to begin, or that work should end so that the worker could be at the factory gate when the shift ended. He wanted the worker to be at his workstation, ready to work, when the shift started and leave only when the shift ended. He also wanted the duration of the lunch break—which was not included in the eight hours—to be controlled so that no working time was lost due to workers returning late from lunch. There would be two seven-and-a-half-minute tea breaks during a shift, something unheard of in Indian manufacturing at that time. All factories had ten- to fifteen-minute breaks and even these were often prolonged. Thus, effective working hours (during which the lines and machines should be operating) should, according to Suzuki, be seven hours and forty-five minutes. Managers had to ensure that all components, tooling, etc were available so that production actually took place during the shift duration, and work did not stop due to lack of some input. It was also expected that the two preventive maintenance shutdowns would lead to no breakdowns during the working period. Not surprisingly, the requirements of both men and machines, and consequent investment, came down significantly when production capacity was calculated on this basis.

The achievement of these standards of performance required discipline and a strong sense of punctuality. When Suzuki left India after this visit, he told us that he would send us a gift on his return to Japan. The gift duly arrived. It consisted of several large packages. When they were opened they turned out to be time clocks, which had to be punched by everyone when entering or leaving the shop floor or offices. Even directors had to punch the clock, which would be installed as close to their place of work as possible and not at the factory gate.

Special care had to be taken to ensure that the time clocks were kept in good order and were not tampered with. In many factories where time clocks had been used, employees had found ways of damaging them so that they did not have to clock in. It was also noticed that at times one employee would carry another person’s identity card and punch in for him also. It took a combination of policing the time clocks and educating the workers to inculcate the habit of punctuality.

Workers were clearly told what was expected of them at the time they were recruited. They had to reach the factory ten to fifteen minutes before their shift started, change into their uniform, do the mandatory physical exercises—again a first for Indian industry—and be at their respective workstations when the conveyor line started. In offices, too, the administrative and managerial staff had to clock in before the shift started, clean their workplace and make sure that they could start work at 9 a.m. Enforcing this was helped by the fact that Maruti had arranged for buses to pick up employees and bring them to the factory. The timings of the buses that plied on different routes were such that employees reached the factory at least fifteen minutes before the shift started. If an employee was late in reaching his pick-up point, he had to find his own means of reaching the factory and that cost money. Thus there was a built-in incentive to be punctual.

Even though Maruti was starting on a fresh slate, ushering in this work culture posed its own set of problems. Maruti had, as a policy, restricted recruitment from other PSUs, where there was not much emphasis on punctuality, high attendance levels and discipline. However, it could not have a blanket ban and, hence, the initial recruits included persons from other PSUs. They found it difficult to understand and appreciate the work culture Maruti was trying to foster. But it was equally difficult dealing with the other workers, most of whom hailed from villages and agricultural backgrounds and had no work experience, being fresh pass-outs from Industrial Training Institutes (ITIs). The pattern of agricultural work is seasonal and not uniform throughout the year. The concept of starting work at the same time every day, and working for exactly eight hours, was alien to persons from such a background. They were also used to celebrating all festivals, as most of them fell in the lean season for agricultural operations. At harvest time, it was expected that all able-bodied persons would work in the fields. Thus workers in most Indian factories had the habit of going home for festivals and at harvest time. As a result, the attendance level in companies sometime falls to as low as 75 per cent. Achieving an overall attendance of 95 per cent appeared impossible in this scenario. Maruti had to spend much time and effort in educating the workers about why the company was insisting on high attendance, discipline and punctuality, and how, over time, they would benefit if they followed our directions. This process of education was backed by a whole bunch of policies and incentives which rewarded high attendance and punctuality.

For example, unutilized casual leaves could be encashed at the end of the year, while medical leave and earned leave could be accumulated up to 240 days and encashed at the time of retirement. No other PSU had such a policy and absenteeism spiked at the end of the year as employees availed their unutilized casual leave. In addition, Maruti also offered an attendance bonus. Attendance was calculated both for the month and for the year and there were graded rewards for up to 100 per cent attendance, with 95 per cent being the threshold. Those who had high attendance over a three-year period were publicly recognized and awarded certificates at the flag-hoisting ceremony on Independence Day. The attendance record of employees also determined promotions as well as selection for training in Japan. The senior management were expected to set an example in this matter. Thus I, during my sixteen years with Maruti, had an average attendance of nearly 98 per cent.

Interaction with the Japanese brought out the fact that workers in Japan had developed full confidence and trust in their managers. They believed that their managers were fully committed to the success of the company. The managers placed the company interests before their own and did not use any asset of the company for their personal benefit, quite unlike the practice in many family-owned companies in India. At the same time, they followed all the rules, polices and practices which were prescribed for the workers, again a departure from most Indian companies where managers had a different set of rules. Finally the workers believed that management was fair and transparent, even though it expected high standards of performance from the employees. They believed that managers would look after their legitimate interests in a reasonable manner.

Krishnamurthy and I realized that a similar situation had to be created in Maruti if the company was to emulate the Japanese levels of quality and productivity. Merely exhorting workers to behave in a certain manner would not be adequate—it had to be backed by the actions and behaviour of the managers, especially the senior management. In most Indian companies, workers believe that the company is run for the benefit of the promoter, that they are paid as little as the management can get away with, and that the promoter has little genuine concern about their welfare. There is not only a class distinction between the workers and the promoters and managers, both also see each other as adversaries.

How could we change this and create a team spirit? Being a PSU, Maruti had no promoters in the private sector sense of the term and Krishnamurthy and I had to play this role. We realized that what we did would establish the culture of the company. As a first step we decided to treat workers and managers in the same manner in as many areas as possible. We also decided that blue-collar workers should be respected for the contribution which they would make in a manufacturing company, and they should not feel that white-collar workers had any advantage over them. We decided to follow the Japanese in having a company uniform, which had a clear role in building teams and downplaying individual differences. Our uniform consisted of the distinctive light grey trouser and blue shirt embossed with the Maruti logo. Everyone from the managing director downwards had to wear the uniform. The uniform was made of the same material, had the same design and the same manufacturer for all employees. Some other companies also prescribed uniforms, but the insistence on wearing them was not very strict, except in the case of the shop-floor workers. Even here, exceptions were allowed. In many cases, the material and design of the uniform was different for workers and managers. The Maruti management realized that the whole purpose of having a uniform would be lost if these mistakes were repeated.

Initially, some of the senior managers, who had come from the government or other PSUs, said that they would be embarrassed going for meetings outside the office or attending functions wearing the uniform. The fact that Krishnamurthy and I used to do so did not cut much ice with them. Krishnamurthy decided to provide them with a changing room, where they could wear suits and then go out. Once back in the factory, or office, they had to change back to the uniform. After some time, the task of changing clothes proved irksome and managers started going out in the uniform. They realized that wearing the uniform did not lower their status at all. As Maruti’s success and reputation increased, workers took pride in wearing the uniform, as they wanted to be recognized as Maruti employees. One big step was taken in creating worker identification with the company.

Another important step was a common canteen for all employees, regardless of rank. The food would be the same for all, as would be the plates and cutlery. Everyone would need to stand in a queue for self-service and then sit at a table designed for six persons. There were no separate tables or seating area for managers. The workers were thrilled with this arrangement, not only because it removed the distinction between them and managers, but also because they realized that the quality of food would remain consistently good. The junior engineers and managers were also quite happy to accept this arrangement. However, some of the senior managers were not willing to accept this radical innovation. They found a room, got an air-conditioner installed, brought lunch from home and started eating there. Krishnamurthy soon got to know about it. We decided that strong action was needed. The room was locked and the officers were told that they could either eat in the canteen or do without lunch. They soon started going to the canteen.

There was no real problem in implementing another departure from general practice—providing common toilets. Most Indian offices had separate toilets for officers and the clerical staff. In factories, there were separate toilets for workers and managers. One consequence of having common toilets was that all the toilets were kept clean, unlike elsewhere where the toilets for workers and clerical staff are usually not well maintained and tend to smell badly.

The arrangement for seating in the office area was also designed to foster this sense of team spirit and oneness. In Japan everyone, including directors, sat in open offices. Suzuki explained that open offices were essential to establish better and easier communication between all the employees. Many bad decisions were taken because of lack of complete information with decision makers. The open office culture made sharing of information and consulting others much easier. There were separate rooms for meetings, confidential discussions and visitors.

We realized that open offices also helped in doing away with the hierarchical culture in Indian workplaces which created distinctions between different employees in an organization. Thus, the clerical staff sat in crowded offices, with no arrangements for cooling in summer or heating in winter. Junior officers shared a room and were provided with coolers and heaters. As their seniority and rank increased, they moved to bigger rooms, with better facilities. Clearly, this concept was not consistent with the objective of building teamwork and making employees believe that they were all equally important. We believed that all the extra facilities which came with higher positions in the hierarchy were really not required for doing one’s work. Everyone needed to have a clean and comfortable environment in which to work. The quality and quantity of output was not related to the size of the room, or the dimensions of the table or the number of air-conditioners in the room. Thus Maruti decided to follow Suzuki’s advice and have open offices. It not only reduced cost and space requirements but also led to much better discipline and transparency in working. While the officers could see what the clerical staff was doing, the officers themselves could not use office time to do private work, or call colleagues over for a gossip session over coffee. Since all visitors were met in the meeting rooms, it also meant much less disturbance.

However, initially when the furniture was designed and placed in the open offices, we made a mistake. Four tables were put together, to seat four persons, but each table was separated from the other by chest high partitions. This meant that a person was not visible to even the person sitting next to him. This arrangement was made as a kind of compromise between having separate rooms or cubicles and an open office. When Suzuki came on his next visit, he rejected this arrangement outright. There were to be no partitions at all. All the partitions were torn down, despite lakhs of rupees having been spent on them.

The redesigned office areas in the factory comprised seemingly endless halls with lines of T-shaped tables at right angles to the corridor. The halls were divided into sections by several glass-panelled rooms—reserved strictly for meetings. The head of a section sat at the head of each table, facing the corridor and with his back to the window, while those who reported to him sat on both sides of the T. This made it easier for subordinates to discuss matters with their seniors, unlike in offices where the managers sat in a room. The change was particularly striking for S. Maitra, who had joined Maruti from Tata Motors, and where it was common to wait for two days to speak to his senior manager. At Maruti, all he had to do was walk up to the head of the table and discuss whatever issue he wanted to.

This obsession with transparency and efficiency carried over to the layout of racks in the stores as well. The normal practice was for racks to be placed along the length of a room, with one rack behind the other. This meant that a person entering the storeroom could not see the racks at the rear, or what was going on behind even the first rack. Suzuki insisted that all racks be turned 90 degrees so that when one entered the store it should be possible to see all the way to the back of the store. By walking down the length of the store, it would be possible to see what was going on in the entire store and nothing would be hidden. It was a very simple, but effective, control system which cost nothing to implement.

Most of the persons recruited by Maruti gradually adjusted to these conditions of work. Some did not and they left the company. Krishnamurthy and I felt that this was a small price to pay for bringing in a work culture which would enable Maruti to achieve high standards of quality and productivity.

Though blue-collar workers have the greatest role to play in improving productivity and quality, because they are the ones who are actually involved in running the machines and working on the lines, yet, in most companies, white-collar workers have better conditions of work. We decided that this would not be replicated in Maruti. Working hours were, therefore, kept at forty-eight per week in both the factory and offices. The number of holidays was the same for everyone. Air-cooling was provided in the factory, not only for the comfort of the workers but also as a means of reducing dust levels. All employees were entitled to similar medical facilities, with a worker also being eligible to get a heart bypass operation done in the Escorts Heart Institute, a premier hospital which would normally have been within the entitlement of senior managers.

Krishnamurthy was very clear that top management, by its actions, should convey to workers that they were considered to be very important for the success of the company. This message was frequently given to union members. If increments or promotions were to be announced, this was first done for the workers and later for the managers. I continued this approach after Krishnamurthy moved to the Steel Authority of India as its chairman in April 1985. At the same time, this policy was linked to bringing in a strong work discipline. There was no compromise on matters like punctuality, wearing uniforms, working according to the prescribed systems and following instructions. The workers soon realized that while the management would be fair and transparent, and take care of their genuine needs, it would not allow wrong things to be done.

It was realized that continuous training of workers was necessary if their attitude towards work, the company and its management was to be changed. This is what the Japanese had done and their advice to Maruti was that communication with workers and explaining the rationale behind policies and actions was of critical importance. The management should not be disheartened if results were not visible in the short term, and instead of taking punitive action if some workers did wrong, it should continue educating them. Krishnamurthy decided that this could best be done through a union which had a positive approach.

The trade union movement in India had developed believing that the interests of the working class and that of the capitalist owners of companies were in conflict. As such, managements could be expected to give only the minimum possible benefits to labour, and it was necessary to fight for every facility. Union activists believed it was not the role of the union, or workers, to get involved in trying to improve productivity or quality. If workers were required to produce more, they should be paid extra for this. The union’s job was to fight for the workers and to protect their jobs at all costs. Large companies usually had multiple, politically affiliated unions whose office-bearers were mostly outsiders. Strikes were quite common, and at times these could turn violent.

Immediately after the war, trade unions in Japan functioned in the same way. However, industrial and governmental leaders there quickly saw the fallacy and futility of such a confrontational system and understood that workers could only prosper and have job security if their company was generating profits and growing. At the same time promoters and managers had to ensure that they were fair to workers and gave them an equitable share of the benefits of higher growth, productivity and profits. The Japanese worked to bring this about and succeeded. We understood the logic of their system and so wanted to completely reverse the traditional culture and bring about a mutually beneficial relationship between workers, the union and the management.

As a first step, Krishnamurthy promoted a trade union at Maruti, before political parties and outsiders could establish one. K.K. Datta, who was a union leader at BHEL, was given employment in Maruti, and became general secretary of the Maruti Udyog Employees Union (MUEU), which was affiliated to the Indian National Trade Union Congress (INTUC), the trade union wing of the Congress party. Workers were encouraged to become members of this union and they were told that the management would encourage the union to effectively interact with it so as to best protect the interests of workers. But first the credibility of the union had to be established, and this was done by consulting the union and involving it in framing policies and taking decisions in matters affecting the workers. Thus, the policy regarding uniforms, and its colour and design, was settled in consultation with the union. The union was involved in the functioning of the canteen, the arrangements for providing bus transport for employees, medical treatment issues, and fixing the shift hours. It was also the agency which discussed any problem of workers and was involved in finding solutions which were fair to them and to the company.

The fact that Datta knew Krishnamurthy from before and had been brought to Maruti by him, helped increase the belief that he could get workers a fair deal. The importance of the union was highlighted by ensuring that the president and general secretary of the union were seated on the dais at every Maruti function. They would, along with the top management of Maruti, receive all VVIP guests and garland them. Very soon most employees became members of the MUEU.

The various policies introduced to make workers feel that they were part of the company and would be treated on par with managers greatly helped in creating the belief that Maruti was different from other companies. However, this was obviously not going to be enough if the right values were to be created and sustained. This could be only done through continuous education and good communication. Unfortunately, managements in India spend very little time and resources on this.

I decided to take on this task. Monthly meetings were held with the union, which I chaired, even when I was the managing director, and most directors were also requested to participate in these. This raised the status of the meeting, and conveyed that the management was serious in having talks with the workers. Before the meeting, a note was circulated to the union executives giving information on important developments in the company, and the main tasks and problems ahead. Progress against targets was reported. At the time when the business plan for the next year was to be planned, goals and targets were suggested. At the meeting, the first hour or so was spent in discussing the contents of the note. Not only were the union executives thus kept fully aware of what was happening in the company, but they also felt that they were contributing to its progress. Gradually these union executives, who were all regular workers, became much more aware of various aspects of running a company. This gave them a better understanding of the operations of the company and the considerations involved in decision making, and made them more responsible when raising demands. After the union meetings each executive was required to interact with his constituency and share the information and ideas gathered with the workers. The management believed that this would be the most effective way of reaching all the workers, and this could not be done successfully by the management trying to interact directly with them.

After the general discussions at the union meetings, the MUEU raised issues regarding the workers and suggested how working conditions could be improved. Matters which were regulated by government orders or regulations were outside the scope of the agenda. We did find that if the reasons why a particular suggestion could not be accepted or needed to be modified were explained properly, the union representatives would understand.

Among the matters discussed were the pros and cons of having multiple, politically affiliated unions, with outside office-bearers. Instances were given of how workers had suffered due to factories being closed, or even police firing taking place, as a result of inter-union rivalry and political interventions. The workers were shrewd enough to understand that outsiders would not work for the Maruti union unless they stood to benefit in some way. This could only be political gain or some financial advantage. Securing these objectives could sometimes be in conflict with the real long-term interests of workers. As a result of these discussions, a large part of the workforce accepted the need for a single union, with none of the office-bearers being from outside Maruti.

Not long after, in 1987, the union also decided to end its affiliation with INTUC. The workers and the union realized that if it remained affiliated to INTUC, and another political party came to power in Haryana, there would be enormous pressure for a second union affiliated to that political party to be formed and this would open the doors for multiple unions with all the dangers inherent in such a situation. Since a Congress government was in power at the Centre, the INTUC complained to the industry minister, N.D. Tiwari. I had to explain to him, and later to the INTUC president, why a non-affiliated union would be better for the long-term success of Maruti. Fortunately, both these gentlemen appreciated my reasoning and did not pursue this matter any further. Later, when Om Prakash Chautala, then of the Janata Dal, became the chief minister of Haryana, he did get a union registered, and it was supported by his party. This was easy, as only seven workers were required to form a union. There was considerable pressure on me to recognize this union, and attempts were made to coerce workers to join and support it. However, the workers were very clear as to what was in their interest and the new union got minimal support. I took the view that the new union could not be recognized unless it had significant membership support. I argued with Chautala that trying to politicize the workers of Maruti would hurt the company, which was already a showpiece of Haryana, and would affect investments to the state. We both agreed that the results of the elections that were due would determine whether the new union had support or not. The workers voted heavily in favour of their existing union. Chautala was gracious and accepted the verdict. His party union was dissolved.

I also decided that it would be useful to occasionally communicate directly with all the employees. Thus, when a very important issue came up, and it was necessary that everyone be aware of all aspects of that matter and its relevance to the company, I would write to the employees on the subject. This would inevitably lead to a debate among them, creating a sense of participation.

The impact of this effort at education and better communication with all employees, when coupled with other actions and decisions to create trust in workers, paid off—Maruti becoming a highly productive and low-cost manufacturer. It would be hard to find any manufacturer in India who has higher labour productivity or greater participation of workers in making improvements. This happened because a large number of workers came to believe that their future, in terms of job security and quality of life, was linked to that of Maruti.

The union-management relations did not always run very smoothly. By 1986, Datta had become unpopular. This was partly due to his behaviour, which alienated many workers, and partly because many workers felt that he was too close to the management. In 1988, Mathew Abraham was elected president of the union for one year. While he agreed that workers should cooperate in increasing productivity and improving quality, he wanted to establish his leadership by trying to secure additional benefits for the workers. In this effort, I believe, he often became unreasonable.

The first major issue he picked was housing for workers. The guidelines issued by the government for public sector undertakings stipulated that they should build a housing colony for a part of the workforce. The Maruti management was aware of this. However, during the preparation of the project report, SMC flatly refused to provide funds for housing. This was partly to keep down project costs and the amount which SMC would have to invest. In addition, SMC wanted the management to concentrate on learning how to make good cars and not how to manage a township. Krishnamurthy was also aware that often issues relating to the management of a township trigger industrial relations problems. So he was happy to accept the view of SMC. Hence, the cost of housing was not included in the project, and it was decided to explore other avenues for providing housing. To this end, in November 1984, the board even considered issuing preference shares to finance a housing project. However, even that would have thrown the economics of the project out of gear.

The union, led by Mathew, however, was adamant on Maruti adhering to public sector guidelines and building a housing colony. Several discussions were held with the union to find a viable alternative. For example, public sector personnel rules also stipulated that employees could be given house building loans. Maruti suggested that such loans would be arranged from a bank, and the interest on these loans could be subsidized. The workers could form a cooperative housing society and build the houses inside the factory premises, provided the houses were used only by employees and ex-employees. The housing colony would have to be managed by the society. In June 1986, the board gave in-principle approval to this idea. However, the union would not agree, and wanted Maruti to build a housing colony, manage it and rent out flats to workers. The issue dragged on for two years.

In 1988 Abraham upped the ante on the issue of housing and the union included a production incentive in its demands. It initiated a tool-down strike, starting with one hour on the first day and increasing progressively by an hour on each subsequent day. This continued for a few days, with the tool down reaching four hours a shift. At this stage, the management sent notices to all workers, saying the tool down was illegal, as no proper notice of a strike had been given, and asking them to show cause why eight times the salary for the period work was not done should not be deducted from their wages. In due course, I went ahead and deducted this amount from all those who had participated in the tool down. For many years the union pleaded for restoration of the deduction. Ultimately only half of the deduction was restored. It was meant to be a message that while the management would be very worker friendly, illegal actions would not be tolerated.

Simultaneously with the notice, I also started talking directly to the workers and explained that under the scheme being followed in PSUs, when a worker retired, he had to vacate the rented house and he had nowhere to live. I showed calculations which established that the amount of rent paid during the service of a worker was several times the cost of the house he was living in. On the other hand, the alternative of a housing cooperative would result in the workers owning their houses and having a permanent asset, where they could live after retirement. The workers wanted to know how they would pay the instalments of the housing loan. I explained that the instalments would be so fixed that they could be paid from the house rent allowance. This allowance would rise as salary levels increased, and workers would not face any hardship. Maruti would get involved in finding a good contractor for building the colony, and provide the engineering supervision free of cost, so that the cost of construction was as low as possible. Maruti would also help in getting land allotted by the Haryana government, since by that time it was not possible for land to be given inside the factory.

In reality, this scheme was far superior to the practice being followed in public sector undertakings and the workers were smart enough to realize this. A majority of them agreed to try out the scheme. The tool-down stir had in any case been given up after the notice of wage deduction and our talking to the workers. Mathew found that he was in a minority on this issue of a housing colony.

I was able to persuade the Haryana government to allot land at the government price, at Chakkarpur village, not far from the factory site. Raj Chopra, a Maruti dealer who also owned a construction company, agreed to build the housing colony without charging any profit. Loans were arranged from public sector banks and Maruti agreed to pay the instalments directly to them from the salaries of the loan takers. Maruti’s civil engineering department undertook the supervision of the work. It was decided that double-storeyed houses would be constructed, though the workers wanted independent plots. I explained that this would drastically reduce the number of flats and many workers would have to go without a flat. Nearly 1,000 one-bedroom and two-bedroom houses—the cost ranging between Rs. 125,000 and Rs. 175,000—could be built on the land.

The idea of workers owning and managing their own housing colony was quite novel. The Prime Minister, the late Chandrashekhar, thought this development was important and agreed to come to Chakkarpur to inaugurate the colony. The scheme was a huge success, with twenty-five-year-olds finding that they owned flats. Soon after the colony was built, the development of the Gurgaon area started in real earnest and property prices started shooting up. These flats, being quite centrally located, appreciated sharply in value. Some of the workers started renting out the flats and the rentals were far more than the instalment of the loan.

Even as the Chakkarpur colony was being built, those who had stayed away from joining the scheme saw its benefits and wanted Maruti to develop another colony. By then, the Haryana government had no more land to allot to Maruti, and suggested that land should be bought by negotiation. Accordingly, about 107 acres of land was purchased at Bhondsi village in 1989, and a second cooperative group housing society formed in 1991. Houses in the new colony were allotted and occupied in 1994. However, purchasing this land, even on behalf of the workers’ cooperative, showed how difficult it was to operate as a public sector undertaking.

The party in power in Haryana changed. The district magistrate of Gurgaon, who had helped Maruti in buying the land, was apparently not in the good books of the new government, and was charged with corruption and suspended, only to be found innocent many years later. One of the allegations related to the purchase of the Bhondsi land. Some other district-level officers were also included in this charge. Attempts were made by the Haryana vigilance to also start inquiries against me and other Maruti officers. This was perhaps necessary as otherwise the case against the Haryana officers would not stand. The CBI was also given a complaint. The workers, who were paying for the land, had no complaint, and only wanted the houses to be built fast. When the full facts of how the transaction was made, including the basis of the pricing, were made known to the authorities, the inquiries against Maruti personnel were dropped. The houses were built, but there was no good school in the area. We then formed a Maruti Employees Educational Trust in 1994 and were able to persuade Delhi Public Schools Society, which ran some of the best schools in Delhi, to enter into an agreement with the Trust in 1995 and start a branch in Bhondsi. Maruti provided financial support to the trust, on the condition that children of Maruti workers would get priority in admission to the school. Workers, who always struggled to get admission for their children in a decent school, could now educate them in one of the best schools in the region.

The Chakkarpur and Bhondsi projects solved the issue of Maruti having to provide a housing colony. But a much larger benefit, of permanent value, came in the form of the management winning the trust and confidence of the workers.

The need for establishing good communication, and changing traditional ways of thinking, could not stop only at the level of workers. It was also equally important and necessary that supervisors and junior as well as senior management should all share a common vision of how the company should be managed and a new work ethos developed. Unless all these levels of employees were fully involved in the process, it could never succeed. The key was a good system of communication. One initiative taken was to establish a Sahyog Samiti, which consisted of representatives from all levels of employees, coming from all the work areas. This samiti met at regular intervals, and like the union meetings, discussed both general issues of policy as well as specific problems. Individual grievances were outside the scope of the meeting. I would preside over these meetings and frequently reiterate the basic concept of the Japanese system of harnessing human potential to overcome a multitude of handicaps. The members of the samiti were expected to convey the gist of the discussions to their colleagues after the meeting.

A few times in the year, I would also meet with a group of supervisors and listen to them. They would have their own set of grievances. I realized that supervisors often had a problem of identity—they were not workers and were rarely treated as part of the management. The graduate engineers were always treated as being in a different class. It was necessary to address this. These meetings with them, where issues relating to company policy were also discussed, helped them feel more involved with the management. We also had to find ways in which they could upgrade their technical qualifications and have prospects of moving into management levels.

Meetings were also held with the department managers. In the initial years, one concern was that managers tended to work in compartments and were very reluctant to share information with their colleagues, or consult even those departments that would be later involved with implementing a decision taken by them. Managers resented a manager from another department sending for and talking to one of their subordinates. They wanted all such requests for a meeting to be routed through them. Information would only be given to another department if a written request was sent. Such practices often led to poor and delayed implementation of decisions, as those who were not involved in the process of decision making created hurdles by raising objections. They did not feel any ownership for the decision and resented not having been consulted. The Japanese advised us to break down these barriers and create more extensive and open communication between, and even within, departments. The open office system was one way of achieving this. This subject would often figure in the meeting of department managers. Over the years, slow but substantial progress was made.

At these meetings of department managers, they were also encouraged to take decisions and shoulder more responsibility and assured that bona fide mistakes would not lead to adverse consequences. There were complaints from them that powers were not adequately delegated and this led to delays and a feeling of lack of empowerment. However, I sensed that there was a general reluctance to exercise the powers that had been delegated, and most managers—coming from a public sector background—did not want to be in a situation where they would be clearly responsible for a decision. Our exhortations to them to be fearless were probably not really believed. Even after Maruti ceased to be a public sector undertaking in 1992, managers still did not feel confident enough to take responsibility for decisions. I often had to return files saying that the proposal sent to me for approval was within the powers of the concerned officer. This shakiness of managers pointed to a larger human resource development issue which needed to be addressed.

Training managers to become capable of shouldering higher responsibilities is obviously one of the main tasks of any management. A second and third line of succession should be available for all key jobs. However, only a few companies are able to achieve good results in this area. Public sector undertakings are not amongst them. I would discuss this shortcoming with senior managers from SMC to understand how companies in Japan were able to accomplish this task.

In Japan, after an executive had worked for a few years in a job, had acquired good knowledge of that area and it appeared that he had the potential for higher general management, he was rotated through different departments. This gave him a broader understanding of the working of the company and the ability to take decisions which reflected more than the interests of one department. On the other hand, public sector executives rarely ever changed the department in which they worked, and they reached senior positions with knowledge of only one area of the company. For example, a production engineer would stay in production all his life and would not work in other departments, including marketing or supply chain. As a consequence, when he was promoted as a general manager, and later to the board, he would work more as a specialist than a person who had a complete view of the business and could contribute to effective management of the company, including formulation of strategy and long-term plans. In most cases, such a person would also have limited experience of human resource development, as this is a specialized area, and managers from other disciplines never get to work in the human resource development division, since they believe it only deals with recruitment, transfers and postings, pay scales and increments, keeping leave accounts, conducting disciplinary proceedings and so on. Since one of the important requirements of senior management is motivating employees and getting the best out of them on a sustained basis, lack of experience in this area becomes a big handicap.

I soon realized that job rotation as a means of training for higher management responsibilities was not limited to Japanese companies but was also followed in well-managed firms in the west. I decided that Maruti should also introduce job rotation and started by asking Bhaskarudu, who had been working in the production area both in BHEL and now in Maruti, to consider moving to another discipline. His first reaction was to ask if he had done something wrong, for which he was being punished! He found it difficult to understand the value of rotation and felt that moving from production would adversely affect his future career prospects. It took several meetings and discussions, spread over more than a year, for him to agree to move. He was given charge of the supply chain function. I encountered similar resistance when a few good managers in production and materials were asked to move to do human resource work.

Despite misgivings on the part of many managers, a policy of job rotation was introduced and implemented. The results at first were not at all satisfactory. Virtually all the divisional managers would not release their good managers, pleading that their work would suffer. The persons who were released for being rotated were those who were dispensable—quite the opposite of what should have happened. Worse, the divisional managers in the department to which they were transferred gave them stepmotherly treatment, because they were ‘outsiders’. They ended up getting almost the worst grades in the division. That was not totally surprising, as they were generally average grade officers. Seeing this happening, the good executives became very apprehensive of being rotated, as they did not want to risk getting bad grades in the new department. After I retired in 1997 the policy of rotation was not implemented. I think the fault was mine in that I had not spent enough time educating the managers on the need for a rotation policy, and how it would help both the company and their careers.

In 2004-05, after I had rejoined the board, and was associated with the human resource work, intensive training was imparted to the divisional managers to make them understand why this policy was necessary and the message trickled down to others. The head of the human resource function, S.Y. Siddiqui, prepared a policy document which laid down that persons with uni-dimensional experience would not be eligible for higher posts in general management, and this document was widely circulated. The rotation policy was implemented thereafter and has been working well since then.

The importance of good communication with subordinates, and particularly workmen, was frequently discussed with the departmental managers. It was emphasized that communication could only be said to be good when it was both ways. Merely lecturing to workers was not adequate. Supervisors and managers must also listen to workers with an open mind and respect their views. Merely because a worker was less educated did not mean that he could not have valuable ideas. The success of the Japanese in making continuous improvements in quality and productivity and reducing costs consistently over several decades was based, to a large extent, on ideas generated by workers through the suggestion schemes and quality circles.

From the beginning, the SMC experts emphasized the importance of following the Japanese system of involving workers in making continuous improvements through the suggestion and quality circle schemes. Individuals derive much greater satisfaction from their work if they feel that they are actually helping in adding value, instead of merely carrying out instructions in a mechanical manner. Maruti realized that if workers could become actively involved in making improvements to the company, it would greatly help in creating a new work culture. Accordingly, a suggestion scheme was introduced in 1984 and Maruti paid Rs. 2 for every suggestion made, irrespective of whether it could be implemented or not. Initially some frivolous suggestions were made, probably just to earn the money, but the workers gradually became more involved in making practical and sensible suggestions. After a few years, the scheme was modified and workers were paid only for suggestions which were implemented.

A financial reward system was developed, where the person making a suggestion was given a part of the savings arising from the implementation of the suggestion. In addition, the names of those making large numbers of suggestions were displayed on the notice board. The person making the most suggestions in the company each month had lunch with the Japanese joint managing director in the canteen. At the end of the year, the person making the highest number of suggestions was invited, along with his family, to have lunch with me in a five-star hotel.

The quality circle scheme was based on the belief that workers who were involved in a particular shop-floor activity would be in the best position to know the problems in that area and would also be best placed to provide solutions. In some cases cross-functional teams could be formed. Initially, managers were sceptical of the scheme, despite SMC managers telling them how this activity had led to enormous benefits in Japan. Our engineers and managers thought that since SMC had laid down all the processes in consultation with them, how could less educated workers make improvements to them? SMC insisted that we should try the scheme. Maruti started to form quality circles from 1985 and gradually extended them to all the work areas. Each circle usually consisted of between four and ten workers and included supervisors. Managers were expected to guide the working of the quality circles so that workers understood the methodology of identifying and solving problems. Over the years, Japanese companies, including SMC, had standardized how quality circles should proceed to identify problems and find solutions to them.

In Japan, the quality circles met after a shift was over. This was not found to be practicable in Maruti because the workers did not have their own transport and needed to leave for home with the other workers in the buses. However, so much importance was attached to promoting quality circles that the company decided to allow one hour a month of working time to be used for this activity, with managers helping identify the problem to be tackled and then systematically finding the correct solution. A scheme for financially rewarding quality circles, based on the quantum of financial benefits accruing from their work, was introduced. Maruti also decided to start a competition between all the quality circles in the company. The winning team would go to SMC, Japan, to take part in an event for quality circles from all the overseas plants. The runners-up and third-placed teams were given good prizes.

Thus, the incentive structure for the quality circles was attractive. Nevertheless, the results in terms of savings were not as much as was hoped for. Till 1990, annual savings were under Rs. 2 crore a year. Between 1991 and 1995, savings increased to an average of Rs. 7 crore a year. I made a far more detailed study of how the quality circles were actually working. I realized that managers were not giving the programme as much attention and importance as was required, perhaps because it did not influence their performance assessment for the year. I told them that in future, their ability to motivate and educate workers to do better in quality circles would be an important factor in evaluating their performance.

The company had far less quality circles than it should have had. With around 3,500 workers, Maruti should have had close to 500 quality circles, but that was not the case. Moreover, the active ones, who were generating savings, was less than eighty. This needed correction. I wanted all workers to actively take part in quality circle activities. After all, company time was being allocated for this purpose. Accordingly, I put a full-time manager in charge of this activity. All the managers were required to get quality circles formed so that all workers under them were a part of one circle. Details of each circle were entered on a computer file maintained by the manager in charge of this activity. Every time the quality circle met, the progress made in that meeting had to be entered into the computer. The manager in charge would monitor progress and would report to me about those quality circles that were not meeting or were not making satisfactory progress.

The results were immediately noticeable. Savings in 1995-96 jumped to Rs. 34 crore. In the next two years, they were Rs. 51 crore and Rs. 78.5 crore. Thereafter, annual savings of about Rs. 70 crore are being achieved each year, with the savings touching Rs. 479 crore in 2008-09 as a result of one quality circle, Uday, alone saving Rs. 429 crore through improvements in the service bay.

The management structure in public sector undertakings is very hierarchical. The usual pattern is for a fresh engineer or management graduate being designated as an executive. The next levels are usually senior executive, deputy manager, manager, senior manager, deputy general manager and general manager. The numbers who get promoted each year to the next level depend on the vacancies at that level. In the decision-making process, each level reports to the next higher level. This structure at times leads to persons stagnating for many years without getting promoted. It hampers decision making as there are so many levels which have to be crossed. Experience also showed that in this system, very few persons actually added value and improved the quality of decision making.

We discussed the organizational system in Japan with SMC and it was agreed that Maruti should have a much flatter structure for purposes of decision making. Being a public sector undertaking, we had no flexibility regarding pay scales—we had to follow what was applicable to all public sector firms—but we could determine our organizational structure and decision-making process. The government had determined that workers would have seven scales of pay, with the first two levels being for unskilled persons. It was decided that workmen in Maruti would be recruited from those who had passed the high school examination and had also got a certificate from an ITI in certain specified disciplines. Maruti wanted workers to be literate and have some knowledge of technical working. This would be similar to Japan, where all workers were recruited after passing high school. Literate workers were required so that they could read and understand the operating procedures for the workstation, and also be able to benefit from our communication and educational efforts. In addition, prescribing these qualifications helped in restricting the number of individuals who could be recommended for jobs by politicians. Maruti had very few jobs where unskilled workers were required, and we had inherited many such people who had been employed in Sanjay’s company.

The practice in the public and private sector was to recruit diploma holders in an engineering discipline to work as supervisors. Maruti adopted the same system and this continued till it was changed after several years. Salary scales 8 to 10 were meant for supervisors. Engineering graduates, chartered accountants and those who had an MBA degree were recruited as executive trainees and after completing the prescribed training period, were placed in the first level of the managerial scale. These started from 11 and went up to 18. Those with an MBA were given a higher start in scale 11. In accordance with the public sector system, the scales went up to the level applicable to general managers. Campus recruitment was done from a few of the top business schools and engineering colleges, and the balance requirement of fresh engineers was met on the basis of a competitive examination conducted by an outside party. We could tell politicians, who recommended engineers and graduates for jobs, that we could not make any recruitment in violation of this system.

Having complied with the public sector system till this point, Maruti made a few important changes. Firstly, it decided that the pay scale of a person would not be related to his or her functional responsibilities. Thus, movement from one scale to the next one would not be a promotion in the sense that it meant higher responsibilities. There would also not be any fixed number of posts in any scale, and employees would move from one scale to another based on their length of service as well as quality of work. This principle was applied at all levels, including workers. Thus a worker could move to a pay scale equivalent to that of a supervisor, without actually becoming one.

This change was made for a number of reasons. It would enable the company to select people for posts with higher decision-making responsibilities based only on their suitability for the job. In the public sector system, where pay and decision-making responsibilities are linked, and promotions are based on seniority subject to rejection of the unfit, a vacancy in a higher post is usually filled by the next person due for promotion, irrespective of that person’s past experience and suitability. This often leads to good officers being selected to do jobs for which they are really not suitable. Their past experience and skills are lost by being placed in a wrong job. Apart from addressing this issue, the system adopted by Maruti ensured that no person stagnated at the top of a pay scale, and salaries increased with age and greater family and other responsibilities. This prevented demoralization, which accompanies stagnation. I had come to know that many progressive private companies also followed the same system.

The annual work assessment forms the basis of all promotions in the government and public sector undertakings. Maruti wanted the assessment to be made more objectively, and more importantly, persons to be graded relative to others in the department or division. In the absence of a relative grading system, persons are assessed according to what each reporting officer has in his mind as the standard of ‘outstanding performance’. The best officers are given this grade, and the numbers considered to be outstanding, sometimes, was quite large. Besides the fact that this went against the definition of outstanding, it made it virtually impossible to pick the best person for higher responsibilities. Maruti decided that based on a system of evaluating both achievement against targets and other qualities of a person in quantitative terms, all the persons would be graded so that the best 5 per cent would be classified as A+, 20 per cent A, 50 per cent B, 20 per cent C and 5 per cent C-. A prescribed number of marks were scored depending on the classification secured. Each year the marks obtained were added to those earned in the previous years and when the stipulated level was reached, the person moved to the next level of pay. Thus persons who were graded as A or A+ would move up the levels much faster than a person who scored B or C. In that way a fast track was provided to the more outstanding employees. This arrangement did not fall foul of any government rule, was more transparent, and we hoped, would encourage better performance.

The decision-making system adopted by Maruti provided for only three levels, against the normal six or seven. This was our attempt at a flatter organizational structure. The company was divided into a number of functional divisions. Each division would be headed by a divisional manager, who was the equivalent of a general manager in a public sector undertaking. Below the divisional manager would be departmental managers, who would head a department. Usually a division would have three or four departments. If a department was very large, it could have section managers. Otherwise, the persons below a department manager would be called ‘staff’. No pay grades were prescribed for the staff. At times persons in supervisor grades could also be staff. Equally, engineers and graduates in level 11 to level 14 could also be staff. Files moved from a staff member directly to the department manager, and not through another person who was in a higher grade in the same department. This was a departure from the public sector system and speeded up decision making and also reduced manpower needs. It also made the functionaries feel more responsible as they were dealing directly with the department manager and had to make sure that their proposals were well thought out and backed by data.

One of the major concerns of executives in a company, and particularly in a PSU, is their designation, which is seen as determining their status in society and respect within the family. When it was decided that executives would be known as staff, department manager and divisional manager, there was an immediate objection from the employees that these designations would lower their status as these were not known outside Maruti. Outsiders would not be able to gauge their seniority and status in Maruti. If an executive’s visiting card described him as ‘staff’ or a ‘department manager’, he may not even get to meet his counterpart in other organizations, as they would not know his level in Maruti. It was then decided that while the designations in Maruti would remain for internal purposes, executives would be allowed to use the standard designations, associated with their pay scales, for external purposes.

People were selected as divisional or department managers purely on the basis of their suitability for the post. The salary level for the higher responsibility job would not change, though some of the facilities made available to him would improve. The logic was that the salary level was not linked to the post held, and would change only on the basis of the total points earned through annual assessments and classifications. Persons who were not appointed as department or divisional managers, even though they were senior, could not really complain that they were losing out on emoluments by being superseded.

The grading system worked reasonably well but was also distorted by some of the senior managers, including full-time directors. In an effort to ensure that the maximum number of persons working with them were promoted to the next pay level, the grading and classification was not done objectively in all cases. If a good worker could get promoted by getting a B in a year, because of having been graded A or A+ earlier, he was given that grade, even though he deserved an A or A+. The higher grade was given to another person, who did not deserve it, to ensure that he too was able to meet the criterion for moving to the next grade. My efforts to persuade senior managers to be objective met with very limited success.

There was also constant pressure from directors and divisional managers to increase the number of departments and divisions so that more persons could be appointed to these posts. To an extent, this was done to reward good workers and maintain their motivation levels. At the same time, there was also the belief that the divisional manager who could get most persons promoted, and had the largest number of departments under him, was the most powerful in the company!

In a manufacturing company, involving sophisticated technology, it was necessary to have specialists in various areas, like maintenance of electronic and other complicated electrical and mechanical equipments, and those who were in R&D and engineering. It was necessary to encourage bright engineers to opt to work in these areas and develop specialized skills. They would be demotivated if they felt that they were losing out on salary, status or perquisites by our system of designations. The problem was that generally positions of power and authority in general management were coveted by all because of the perception that persons holding such positions were more important. Companies encouraged such a feeling by giving higher salaries and perquisites to those in senior positions in general management and such persons also enjoyed greater public exposure and recognition. Specialists, on the other hand, worked in the background and were rarely recognized. Because of the nature of their work and experience, we realized that they could not really become department or divisional managers. In such posts we would lose the value of their skills and the chances were that they would not do very well in general management. Maruti decided to have designations of ‘specialist’ and ‘senior specialist’ and at the appropriate time, they were given all the financial benefits of people in positions of general management. They could not get the kind of authority which general managers have. This worked reasonably well, though the feeling persisted in many of the specialists that a general manager was a better designation than a senior specialist.

One of the interesting lessons learnt during discussions with the Japanese experts was the importance of supervisors in the production system. The workers hired in the Japanese factories were required to have passed high school but were not required to have undergone any further formal education, unlike in Maruti, where they also had a certificate in a technical discipline from an ITI. The new entrants in Japan were all trained on the job, and the task of training them was that of the supervisors. Thus, supervisors had not only to be specialists in some area of the production process, but also had to have the ability to teach newcomers. Supervisors were responsible for maintaining high quality levels and solving problems in the production process. They maintained discipline and ensured that work continued smoothly. They were the key persons on the shop floor, and the Japanese management relied heavily on them to achieve targets and to make continuous improvements.

When any production facility or equipment was installed in Maruti, SMC sent experts to commission the machines and train our workers on operation and maintenance, so as to get the required levels of productivity, quality and output. These experts were all highly experienced supervisors. The credit for Maruti achieving 100 per cent and more capacity utilization in short periods of time, and achieving and exceeding production targets year after year, goes to the efforts and quality of our workers and their managers. But all of them would agree that this success would not have been possible without the inputs from the Japanese supervisors. They spent long hours every day, for months on end, bringing in a new shop-floor work culture.

Unlike India, where supervisors were freshers who had acquired a diploma in an engineering discipline, all the supervisors in Japan were chosen from workers, based on the skills they had acquired and the ability to provide leadership. The many years of experience of working on the lines gave them the required depth of knowledge. Managers evaluated the ability of workers to teach, solve problems and provide good suggestions for improvement. Those with the best record were picked to become supervisors.

The Japanese system gave much more importance to experience and on-the-job learning than to academic qualifications. I believed that there was much merit in the Japanese system. The supervisors in Maruti, who were diploma holders in an engineering discipline, had worked on the production lines for very short periods during their initial induction training. They did not really have any hands-on practical experience of assembling cars, or working in weld, paint or machine shops. They could not be classified as specialists and were only generalist administrators. They could hardly be expected to teach new workers or solve problems on the production lines or on machines. It had become evident that the workers did not really respect their supervisors because of their superior knowledge, but only obeyed them out of fear. The Japanese system of selecting supervisors would not only improve the contribution which supervisors could make to the working of the company, but would also provide an opportunity for good workers to get promotion and motivate all workers to perform better.

I discussed the idea of promoting workers as supervisors and stopping the recruitment of diploma holders with SMC personnel as well as with my Indian colleagues. The Japanese were quite happy to introduce this concept in India. Our own managers apparently also agreed to my view, but I realized later that that they had reservations which they were reluctant to voice before me. During discussions we agreed that since very few workers had been in the company long enough to have reached even the pay scale level just below that prescribed for supervisors, we would initially promote workers as assistant supervisors. Those workers who were in the two pay levels just below the supervisor level would be considered for promotion. Amongst them, the eligibility would be restricted to those who had gone to SMC for the six-month training, had done well there, and had shown leadership skills. It was also decided that about 25 per cent of the vacancies of supervisors would continue to be filled from diploma holders. However, they would be initially placed in a lower scale and be required to work on the lines, doing the same tasks as workers for four to five years. Those who showed qualities required of a supervisor would be given that responsibility. The scheme was then discussed with the union and met with wholehearted support. The union had never believed that workers could become supervisors, as there were no precedents in India, and our willingness to try this out would give it brownie points with the workers.

However, the scheme could not be implemented for the next two years, as it faced stiff resistance from managers on the shop floor. They argued that if workers, who were union members, got promoted as supervisors, they would not be able to maintain discipline, even if they gave up membership of the union. Making a change of this magnitude apparently made managers nervous, and the traditional suspicion which existed between workers and managers had obviously not totally gone away. I was not convinced that these fears were justified, bided my time, and did not approve any new recruitment of diploma engineers as supervisors. As production volumes grew and the workforce expanded, there was a need for more supervisors, and the shortage on the shop floor became acute. The managers relented and agreed to try out the new system. In a few months they found that the promoted assistant supervisors were giving better results, and the system was accepted without reservation.

The employees in Maruti were repeatedly told that their future was linked to that of the company, and both would prosper or sink together. Consequently, management and workers needed to work to grow the company and make it as competitive and profitable as possible. This message had been reinforced by the various schemes and policies to convince workers that management respected them and they were an important part of the whole team. At the same time, it was necessary to provide a scheme by which the workers could have an incentive to increase productivity, reduce costs, improve quality and share in the prosperity of Maruti. An incentive scheme, linked to productivity, was one obvious answer. A bonus linked to profitability was another option. The problem was in getting a satisfactory scheme approved by the government. Under the law, workers had to be paid a minimum bonus of 8.33 per cent of salary every year, even if the company was making a loss. In addition, the government had laid down that all kinds of bonuses, excluding the statutory bonus, would have a ceiling of 12 per cent of basic salary, which could be relaxed to 15 per cent for companies who signed a MoU with the government. The union wanted an incentive scheme to be implemented within these parameters. This was also one of the demands during the tool-down agitation during Mathew’s first term as union leader. However, I felt that this would limit the incentive to increase productivity as the ceiling would be reached quickly.

In consultation with senior managers, I worked out a productivity-linked incentive scheme. The base level of productivity would be 25 vehicles per employee per year. This was derived from the government-approved project report which had projected a production of 100,000 vehicles a year with 4,000 employees. Thus no one in the ministry could argue that the number was low. It was unusual for any PSU to achieve peak production within the limits of the projected manpower. The pool of money to be distributed as productivity incentive would be two-thirds of the labour saving arising from a production higher than 25 vehicles per employee. Production meant saleable vehicles. It was also provided that if any substantive capital investments were made, which resulted in higher productivity, the scheme would be reviewed. The money accruing to the pool from higher productivity would be distributed to all employees, including those in the management, but directors were excluded, as they were not eligible for any productivity bonus under government rules. A formula was devised for dividing the money between workers and management. At the worker level, those on the production lines would get 115 per cent of the average amount available for each worker, direct workers would get 100 per cent and the indirect and white collar workers would get 85 per cent of the average amount. Employees with low attendance would lose the bonus amount, which would be distributed to the others. This was our attempt to recognize and reward the efforts of those working in the production lines, and also to encourage high attendance.

The scheme was discussed and explained to the union in several meetings. One main concern it expressed was that workers had no control over the number of cars which could be sold, and it would be unfair for their bonus to be reduced because of poor sales even if they had produced more cars. It was explained to them that while this was correct, the marketing and sales people were also entitled to the bonus and would certainly make their best efforts to sell cars. At the same time, the workers needed to fully recognize the reality that in order to give a bonus the company had to earn money, and that could only be done by selling vehicles. The workers understood this logic and did not press the point again. It was also made clear that the productivity bonus was not part of the wage agreement, and did not require the consent of the union. The management was discussing the scheme with them only to make them fully aware of what was planned, and to get suggestions for improvement.

The broad outlines of this scheme were included in the proposals sent to the government for approval of the MoU. As expected, the first reaction was that there should be a limit to the amount to be paid. I argued that doing so would be counterproductive, as workers would stop increasing productivity once the ceiling was reached. Since Maruti was benefiting to the extent of one-third of wage-cost savings, plus all the savings on fixed overheads, the company would lose as a result of any ceiling on bonus. The ministry officers agreed to our proposal, perhaps thinking that productivity could not increase much more that 30 or 35 vehicles per employee.

The scheme was notified in November 1989. Productivity levels and sales started to rise rapidly. The bonus pool grew and in a few years the workers were getting a bonus which was approximately one and a half times their basic salary. One benefit of the scheme was that workers never opposed automation or other methods to improve productivity.

More importantly, the incentive scheme convinced workers that the management had made good on the promise to link their prosperity with that of the company. Getting worker cooperation on contentious issues, therefore, became easier, as the management found in the mid-1990s. The company had a large number of casual/temporary labourers on its rolls and Abraham, who had again become the general secretary of the union, insisted that their services be regularized. Since these people were doing work which was not related to the main activity of the company, like cleaning, sweeping and unpacking crates, and outsourcing was the accepted way of getting such tasks done, it would not have been in Maruti’s interest to regularize them. The management talked to the other union leaders, and the managers also talked directly to employees on the shop floor, and pointed out that accepting this demand would lead to a larger number of employees, hence lower production of vehicles per employee, lesser labour savings and a drop in the bonus pool. This smaller pool would have to be shared between larger numbers. Hence each regular worker would see a big drop in his take-home pay. With the majority of the workers unwilling to let this happen, the union quietly dropped this demand.

In March 1992, the original incentive scheme expired, since we had specified a three-year term for it, but as a new one had not been formulated, the company had continued to operate it without any modifications. In March 1995, however, the management found it was necessary to revise it, with the second plant coming up in Gurgaon. Over the years, a considerable amount of capital had also been invested in the company, which had led to a substantial improvement in productivity. In the offices, for example, the old-fashioned typewriters had been replaced, first by word processors and then with computers and printers. This enormously reduced the workload of office support staff. Increased computerization in finance and other areas of work also resulted in the need for lesser people, even though the production and sale volumes had increased significantly. Vehicle despatch planning and documentation, and spare part operations were now all using technology to reduce manual work. As a result, while production volumes were set to reach about 300,000 units with the new plant (which would have greater automation) becoming fully operational, the white collar staff would be less than what was needed when production was 100,000 units. Further, more automation had been introduced in production areas, both to improve quality and reduce worker fatigue. If the old incentive scheme had continued in this changed situation, it would have resulted in the incentive amount becoming several times the basic wage. This would have been an unacceptable distortion, and it was necessary to make suitable corrections.

The management started talks with the union and explained the need to make changes. Abraham just would not agree to make modifications. He was obviously aware of the huge increase in production bonus which would result when the second plant was commissioned. It was explained to him that having an incentive scheme was entirely at the discretion of the management and did not require union approval. Discussions were being held with the union only out of goodwill. The scheme in any case had provided for corrections to be made if capital investments were made, which had been done. The company was not willing to continue the old scheme, as the results would be quite unreasonable. However, the union continued to raise objections and called for a strike for two days in April 1995, though this was in response to a call by many trade unions for a strike in all PSUs. Normally Maruti workers never joined such strikes and clearly the union was trying to pressurize the management. The union was warned that the strike would be illegal as proper notice had not been given and consequences would follow. Many workers did not participate in the strike and production lines continued to be operated during these two days. In addition, some of the union executives belonging to the group opposed to Abraham told me that they were quite happy with the modified scheme and it should be implemented. The management then went ahead and, in January 1996, notified a new scheme that was to last till 1999.

Under the new scheme, which used the production and productivity levels of 1994-95 as the base, incentives were not given on the basis of cars produced but, instead, on the number of working hours required by the direct and line workers to produce cars—Rs. X per man hour saved. The role of indirect workers in determining the bonus pool was eliminated. The incentive amount being paid till 1994-95, on the basis of the then productivity level, was protected provided productivity did not fall below this level. In addition, an amount would also be paid based on the company’s profit ratio as compared to that in 1994-95. This was the first time that the incentive payment to workers was linked, though to a small extent, to profitability. Even earlier, I had talked to the union about linking bonuses to profitability, but in 1989 it was thought that it was too early to bring in this concept. The workers better understood payments related to production.

The scheme worked well and every year the number of hours required to produce a vehicle declined. At the same time the controversy relating to appointing my successor had started. Bhaskarudu was supported by Abraham and his group. Abraham had also sought and obtained the support of Gurudas Dasgupta, a Member of Parliament belonging to the CPI. After Bhaskarudu demitted office in 1999 and Khattar took over as managing director, Abraham felt threatened. He needed to show his strength, I felt. He started demanding that the incentive scheme be revised. On 23 March 2000, the union served a sixteen-point charter of demands. While many demands were raised, the main focus was on the revision of the incentive scheme. Abraham wanted 1988-89 as the base year (when one worker produced twenty-five cars a year) while the management wanted it to be 1998-99 (when one worker produced seventy cars a year), the year when the revised scheme had ended. The union also wanted the incentive to be linked to production volume only, while the management wanted to link it to capacity utilization, quality and individual performance. Long-drawn negotiations were held, but they led to no solution. This was but to be expected, as Abraham was clearly itching for a showdown with the management.

Through June and July 2000, the union resorted to agitational tactics and, even as the company prepared for the launch of the Alto, workers started a relay hunger strike in September, which escalated into go-slow, dharna, and gherao of the canteen in October.

When the management realized that the union would not concur with the new scheme, it went ahead and notified it on 11 October. This was similar to the earlier scheme, but the base became 1998-99 and it was to come into effect from 1 April 1999. The management also agreed to revise the conveyance allowance and provide avenues for promotion in non-production areas. The union objected to two key features of the incentive scheme. One effectively meant that the bonus would be cut if production lines were idle because of a slowdown in sales. This was nothing new as even the original incentive scheme had based the payment on the number of saleable vehicles produced. If there was a slowing of demand, production would naturally be reduced. The objection to this provision was not justified.

Even though an incentive scheme did not require any consent of the union, and consent had not been taken even in 1996, the union decided to have a staggered two-hour tool-down strike, moving from department to department. This brought the production down to a mere 299 vehicles a day. The union action was illegal and the management suspended nearly eighty workers and declared that from 12 October, only those workers who signed a good conduct undertaking would be allowed in. Those who did not sign it would be considered to be on an illegal strike.

The union challenged this in court, which rejected the union case and said that the undertaking required was in consonance with the provisions of the certified standing orders of the company framed under the Industrial Employees (Standing Orders) Act, 1946 as well as in terms of the settlement arrived at between the management and the union in February 1998. The management also received a setback—the Haryana government did not agree to its request to declare the strike illegal. There had been minor labour troubles earlier, but this was the first full-fledged strike that Maruti faced in the seventeen years of its existence. Few public sector companies had this record.

The stand-off dragged on for three months, with over 2,400 workers, out of a strength of 4,254, staying away from work. The matter was raised in Parliament and the Central government tried to broker a truce. The Ministry of Heavy Industries was being pressured by some MPs to compel Maruti to accept the union’s demands. The Haryana government, to its credit, was ensuring that law and order was maintained, and the striking workers could not indulge in coercive tactics. This support was crucial and enabled the management to keep production lines running with the help of temporary and contract workers (besides taking workers on loan from its vendors), putting them up in the factory premises under tents, providing them food and even television for entertainment. The company would put out daily press releases about the number of cars produced the previous day. This was designed to lower the morale of the workers and it worked. At the same time a number of workers were dismissed after following a summary procedure. The management was firm on four points—the union would have to accept the 11 October incentive package, it would help restore normalcy at the factory, the dismissed employees could appeal against their termination but would have to agree to be tried under relevant labour laws, and the union would sign an undertaking on behalf of the workers that they would abide by the certified Standing Orders.

Three months is a long time for workers to be on strike, especially when production was continuing, and the management had no real pressure to make unreasonable concessions. SMC was also clear—there would not be any settlement which compromised on the basic principles underlying the incentive scheme and maintaining discipline. By December, some 1,600 workers had signed the good conduct undertaking and returned to work. Finally, on 9 January 2001, the union buckled and called off the strike. It accepted the 11 October incentive package and agreed to sign the good conduct undertaking. The management also bent a bit—it agreed to take back half the dismissed workers, after they signed the good conduct undertaking. However, forty-one were not taken back. Cases were framed against them, an internal inquiry conducted and they were dismissed.

If the strike was a jolt to Maruti, the financial results of 1999-2000 came as a greater shock. Maruti made the first ever loss in its history. Immediate steps were necessary to return to profitability and rationalizing the workforce was one of the many measures which were required.

A voluntary retirement scheme (VRS) was framed and offered to the employees. The scheme was quite attractive and 1,050 employees took advantage of it. After the strike, the employees were in a chastened mood, and many thought it better to take a good package and find some other work. Many of these persons were supporters of Abraham and were not sure of their future in the company. Managers may also discreetly have advised some of them of the benefits of taking VRS and starting a new career. The result was that the deterioration of discipline, which had taken place between 1997 and 1999, was arrested, and the workers gradually reverted to their earlier attitude of cooperating with the management.

At the same time, the management wanted to restore the cordial relations with the union which had existed before 1995. Periodic communications through department and division heads on what was happening within the company resumed and workers were encouraged to speak about their problems, which the management would try to address. Gradually, the workers shed their fears and insecurities.

The challenge of growing competition had now to be met. SMC had taken over the company by increasing its stake to 54 per cent and wanted that the public sector culture of management should change. I was inducted to the board after the public listing in 2003, and this was one of the tasks entrusted to me by Suzuki. There was no doubt that there were many people at the executive level who were not pulling their weight and were unlikely to conform to the more dynamic private sector style of management. It was decided that a VRS should be implemented at the level of executives and managers and this was offered towards the end of 2003.

This time the management took care to do a lot of counselling on the need for having a VRS, making sure employees understood the benefits being offered, and advising them on how to invest the money and rehabilitate their careers. Human resource consultants were called in to help employees restructure their resumes. Those who took VRS before Diwali were pleasantly surprised when the company sent gift packets of dried fruit to their homes. It also allowed the house leases to continue for several months. It was just as well. Those who took VRS in 2001 as well as some of the disgruntled union leaders tried to foment trouble but the employees could not be swayed. As many as 1,251 employees took the golden handshake and left.

This VRS again created insecurity among the workers as they feared that they may also be asked to go under another VRS scheme. There was no such intention and the company rolled out an ambitious programme of internal communication as well as off-site training with outside faculty. The workers were educated about the external environment in which Maruti was now working and how it needed to respond. Initially, the workers responded with cynical disbelief, but gradually they opened up and a lot of misunderstandings got cleared. The next step was to invite family members of workers over for factory visits. It took two long years, but finally the positive mood returned.

Many of these HR management concepts introduced into the Indian industrial environment by Maruti came to be adopted by the private sector. Long after he had left Maruti, Krishnamurthy happened to be on the same flight as industrialist Sushil Poddar, chairman of Gillette India. Poddar came up to him and said he was immensely grateful to him. Krishnamurthy joked that he did not even use Gillette blades. Poddar then told him that when Gillette and he were in talks for a collaboration in 1984, the Gillette management told him that under no circumstances could their blade be manufactured up to international quality in India. Upset by that, Poddar anonymously visited the Maruti factory for some days and observed its working. He then replicated many of the Maruti systems in his factory. Soon, the Gillette India factory was considered the best among all Gillette factories globally. The private sector replicating the public sector is something that is unheard of even now. Unfortunately, within the public sector, there was little attempt to learn lessons from Maruti and this continues till now, when Maruti has a proven track record of twenty-five years.