Hero Honda Motors, Ltd.

To celebrate its 30th Anniversary, SAP is presenting the Asian Leadership Series comprised of interviews with captains of industry speaking on key business issues for the 21st Century. Each interview highlights one of three themes -- vision, innovation or experience -- concepts that have driven SAP's success over the past three decades.

Lee Kum Kee

Hero Honda

Tenaga Nasional Berhad

Quanta Computer

Singapore Airlines

Legend Computer

LG Chem

30 Years of SAP

• SAP is founded as "Systems Analysis & Program Development" in Mannheim, Germany
• Number of employees at year end: 9
• Total revenues: DM 620,000
• SAP R/1 solutions launched

• Two local companies -- Rothhandle and Knoll -- select the newly developed SAP Financial Accounting (RF) System

• SAP organizes as a limited liability corporation with the name of "Systems, Applications and Products in Data Processing"

• SAP moves its headquarters from Mannheim to Walldorf

• SAP R/2 solutions launched
• Total revenues: DM 4 Million

• 50 of the 100 largest industrial companies in Germany are SAP clients

• SAP revenues increase to DM 24 million for the year and more than 250 companies in Germany, Austria and Switzerland are using SAP-developed programs

• Headquarters in Walldorf expand by 10,000 square meters
• Sales increased by another 45%
• SAP system is used throughout Europe as well as South Africa, Kuwait, Trinidad, Canada and the United States
• The first headquarters in the United States is established in Wayne, Pennsylvania

• Subscribed capital stock increases from DM 5 Million to DM 60 Million, company goes public (Frankfurt and Stuttgart)
• SAP gains its 1000th Customer, Dow Chemical

• SAP stock is traded on the Zurich stock exchange
• 1st SAPPHIRE Conference
• 1st Stockholder Meeting
• Established Asia Pacific presence with offices in Australia and Singapore.
• Number of employees: Over 1000
• SAP enters Russian market and begins development of a Russian version of the R/2 system

• SAP enters Hong Kong market
• SAP R/3 solutions launched
• Revenue increases to DM 831 million of which almost 50% derives from international operations

• Customer base grows to 3,500 companies
• SAP introduces an R/3 version for the Japanese market

• Customer base grows to 6,000
• SAP share included in the German stock index (DAX)

• SAP R/3 Release 3.1 is Internet-enabled

• SAP begins developing industry-specific solutions

• Company is listed on the New York Stock Exchange
• Company launches new solutions for Business Information Warehouse, Business-to-Business Procurement and Supply Chain Management.

• SAP delivers
• SAP receives "Best Managed Companies" Award by Industry Week

• Named "Most Successful Company Over the Long-term in the 90's" (Jury of 40 CEO's: Wiesbaden 3/10/2000)

• SAP acquires Top Tier and forms SAP Portals
• Revenues for SAP in 2001 top EUR 7.3 Billion

• SAP acquires TopManage Software Solutions for its SMB offering
• SAP customer base grows to 18,000
• SAP has over 27,800 employees
• SAP celebrates its 30th Anniversary!

Q1. How do you choose your management team?

A1. Brijmohan Lall: "It's a matter of experience. With over 50 years experience (in the Hero Group) we have built up a good team of managers promoting from inside the company. They in turn have created a very conducive environment to work in. This is a friendly company. In Hero Cycles, I still have people who were with me from the beginning and who are grandfathers today."

Q2. What do you do when market research doesn't reflect reality?

A2. Pawan Munjal: "This happened when we launched the Joy motorcycle in April 2000. After six months we found the market was not as receptive to the product as we had expected. So we talked directly with our customers and found that they wanted some specific changes and a different pricing structure. This April we launched the Dawn, incorporating those changes and a new pricing strategy. In the first three months since the launch, we have sold 10,000 units a month and have now reached 13,000 monthly--which is way ahead of our forecast."

Q3. Do you have a personal philosophy?

A3. Brijmohan Lall: "Yes. Make things happen!"

In this interview, Brijmohan Lall, chairman of motorcycle manufacturer Hero Honda Motors, Ltd., and his son, Pawan Munjal, the company's managing director and CEO, speak about the part innovation has played in the company's rise to the top.

Innovation Helps Hero Honda Ride to No. 1 Spot

A question for motorcycle fans around the world: Where is largest manufacturer of motorcycles located? Japan? Germany? Italy? The answer is India, where Hero Honda Motors became the largest single-entity manufacturer of two-wheelers in 2001, shipping 1.4 million motorcycles -- seizing a dominant 48-percent share of the domestic market in the process. In 2002 it plans to increase shipments further to 1.8 million.

The New Delhi-based company is a joint venture between India's Hero Group and Japan's giant Honda Motor Company. Established in 1984, it came about when Honda chose Hero Cycles as its partner to set up a motorcycle operation in India after the Indian government relaxed foreign investment and import regulations on two-wheel motorized technology up to 100 cc. Hero Cycles was then, and still is, the world's largest maker of bicycles, selling over 5 million cycles annually. Another Hero company, Hero Majestic, had also established a moped manufacturing business. This combination of mass-production know-how and a large distribution network proved crucial to Honda's decision to join Hero, despite being ardently courted by a number of other Indian manufacturers.

"Honda saw that we had similar business philosophies," says Brijmohan Lall, chairman and founder of the Hero Group of companies. "We were careful with capital investment, and made efficient use of equipment and manpower. Honda also saw how we had created a strong relationship with the entire stakeholder community, whether it was with our employees, our dealers or our customers. So it all clicked."

From the beginning, Brijmohan Lall made the bold decision to bet on four-stroke motorcycle technology, when two-stroke scooters were by far the most popular form of transport in India at the time. After talking with potential customers around the country, Hero engineers worked with Honda to come up with a design for an extremely fuel-efficient two-wheeler adapted for the Indian environment. In 1985 Hero launched its first motorcycle, the CD100, which gave 80 km to the liter.

"The four-stroke engine is more fuel efficient and cleaner," says Brijmohan Lall. "There was nothing like the CD100 being built in India. Scooters were not getting more than 40 km to the liter. So this was a breakthrough product, and we rode on its success in the early years."

Hero has since fine-tuned its process for finding out just what a diversified customer base across the length and breadth of India wants. It does this by regularly conducting vast market surveys that question up to 70,000 people at a time. What comes back are specific customer requirements and preferences. These are then translated by Hero's marketing and R&D teams into basic specifications, which are sent on to Honda's R&D group in Japan. Honda comes up with a prototype design, and Hero takes this back into the market to sound out customers for possible further refinement, until a winning design is eventually arrived at for Hero to build.

Reaching Out With Mobile Workshops

Given the country's one billion population and large area, it is impractical for Hero to establish sales and maintenance outlets in every town. So it's come up with the fresh idea of mobile service workshops: a complete workshop incorporated into trucks that travel predetermined routes, visiting small towns and villages where existing Hero customers reside.

"Customers are informed a workshop will be coming, so that they don't have to travel hundreds of kilometers to an authorized workshop for servicing or repairs," explains Pawan Munjal, who, as managing director and CEO of Hero Honda, has taken over the daily running of the company from his father.

These mobile workshops also double as sales outlets and spare-part distributors. The concept has been so successful that some of Hero's largest distributors have adopted the idea and send out their own workshops to supplement Hero's efforts.

At the same time Hero has brought innovation into its authorized dealerships. To reduce the amount of manual labor involved in repairs and maintenance, it has introduced pneumatic tools to replace hand tools, while hydraulic ramps now position bikes for easy inspection. It has also installed automatic ventilation systems in repair shops to remove engine exhaust fumes.

It doesn't stop there. Customers can wait in air-conditioned waiting rooms where TVs and water coolers have been installed, while in a few key dealerships, they can enjoy a cup of tea and surf the Internet in Hero cyber cafes. What's more, in certain larger dealerships, customers can actually watch ongoing repairs through glass-fronted workshops. "This gives customers more confidence in our service and support," says Pawan Munjal. "Normally, workshops are dirty areas and companies don't want their customers to see them. We've installed glass walls so customers can see the cleanliness and the type of work that's going on."

Passport to Customer Loyalty

Last April Hero launched the Hero Honda Passport, a program designed to increase customer loyalty. Customers who sign up are issued "passports," and they receive points when purchasing parts or referring new customers. "This helps us in getting to know our customers better," says Pawan Munjal. "We have 600,000 members in the program, and we also organize events where they can meet sports stars and film stars. This creates loyalty in our customers."

But to create loyal customers, a company must first have loyal employees. "Fortunately, Honda has a good name, Hero has a good name, so we attract very good people," says Brijmohan Lall, who at 79, still continues to put in a full day's work as chairman. "With our long experience we have created a friendly atmosphere. My door is never closed, so anyone can walk in at any time."

As a reward for becoming the world's largest motorcycle manufacturer, the Munjals took the managers (along with their wives) who had contributed most to this success on a vacation to Switzerland last year. "We conducted a seminar on top of a Swiss mountain to symbolize our success," says Brijmohan Lall. "We also invited a professor from Harvard University to come and give us a talk on how we must now compete and sustain ourselves at this new level."

Hero Honda's IT Strategy

With the Indian motorcycle market opening up to overseas competitors and more fierce domestic competition, Hero Honda decided it needed to overhaul its various computer systems and create a single integrated IT system. Rather than continue to use computers merely for data processing, it sought to use IT to integrate business operations such as product planning, materials resource planning, financials and sales and distribution. It was also looking to automate its internal supply chain, reduce overall costs, and create a transparent information system that would help managers make decisions more quickly. To do all this it teamed up with SAP in June 2000 to implement the system, and went live in February 2001.

"Now we can look at the same information, when earlier we had three or four different versions, which didn't always match," says Pawan Munjal. "Now we (the managers) can all look at the same costs, for example, because all the information is up there on the screen. Nothing is hidden, everything is transparent. So there are no arguments over figures now, which used to waste time and hold up decision-making."

There are improvements on the factory floor too, now that manufacturing has been brought into the new IT system. In the past there was no accurate way of checking the consumption of raw materials and inventory in general. So excess stocks in some areas became an inevitability. "Now we know what should be there and what is there," says Pawan Munjal. At the same time, defective parts and materials are no longer accepted, forcing suppliers to upgrade their quality.

"The next step is to get dealers and suppliers online, so that orders can be taken directly by the suppliers," says Pawan Munjal. This will eliminate any wastage that is still left in our supply chain."

In upcoming issues of the SAP 30th Anniversary Leadership Interview series, we learn how experience, innovation and vision are driving other major Asian corporations to be leaders in their fields.

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