m 407-065-1 [pic] PEOPLE MANAGEMENT FIASCO IN HONDA MOTORCYCLES AND SCOOTERS INDIA LTD At the onset of 2006, the president of Honda Motorcycles and Scooters India Ltd (HMSI), who was also its chief executive officer, had to make some radical decisions on a number of issues confronting the company following the July 2005 altercations with its workers. Not only did he have to repair the damage to the companyis image, but he also had to develop a strategy for long-term co-operation with its employees.
As he reflected upon the bitter memories of the last twelve months, he wondered if the company could achieve targets laid out in the aggressive expansion plan developed before the unrest. This included tripling the Gurgaon plantis production capacity to 0. 6 million motorcycles and 1. 2 million two-wheelers by the end of fiscal 2007n2008. Neither he, nor perhaps any of the members in his managerial team, could have imagined that workersi seemingly minor grievances would turn into a war-like situation, as they did in July 2005.
The company, despite all its efforts, had not been able to prevent the union formation, that too with an affiliation to All India Trade Union Congress (AITUC), which was the trade union wing of the Communist Party of India. With the events taking a nasty violent overtone, the adverse publicity might have done perhaps irreparable harm to the public image of the company. In addition, the drop in the companyis sales was also worrying. The company had suffered a production decline resulting in a loss of Rs 1. billion1 as a consequence of the strike and go-slow tactics by the workers, especially during the months of May and June 2005. But there was much more at stake than just the monetary loss. While choosing the companyis logo of the wings, the company had aimed to fly high by taking a dominant role in the Indian 1 US$1 = 45 INR on May 1st 2005. Dr. Debi S. Saini, professor and chairperson, HRM at Management Development Institute (MDI), Gurgaon, India, prepared this case for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes.
The author thanks the many people who helped in construction of this case. The three union office bearers of the HMSI union who visited MDI at his request twice to give interviews; Mr. M. R. Patlan, the Deputy Labour Commissioner of Gurgaon, and his staff, who shared information and provided other help to reconstruct some of the nuances of the case; some anonymous persons who also shared useful information that facilitated cross-checking of the claims of the HMSI union and in building several new formulations.
The author also thanks Rakhi Sehgal, a doctoral scholar in sociology, American University, Washington, for helping him establish contacts with many respondents. © 2006 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any meansoelectronic, mechanical, photocopying, recording, or otherwise (including the internet)owithout the permission of The University of Hong Kong. Ref. 06/309C ecch the case for learning Distributed by ecch, UK and USANorth AmericaRest of the world www. ecch. comt +1 781 239 5884t +44 (0)1234 750903
All rights reservedf +1 781 239 5885f +44 (0)1234 751125 Printed in UK and USAe ecchusa@ecch. come ecch@ecch. com 407-065-1 06/309CPeople Management Fiasco in Honda Motorcycles and Scooters India Ltd two-wheeler industry, simultaneously taking advantage of the rapidly growing Indian economy. Given the unexpected turn of events, would the CEO be able to successfully implement strategies that would not only wash away past wounds but would also lay the foundations of a soaring future? HMSI: Products and Workforce HMSI was a wholly-owned subsidiary of Honda Motor Company Limited (HMCL), Japan.
The Tokyo-headquartered HMCL was one of the worldis leading manufacturers of automobiles and power products. With more than 120 manufacturing facilities in 30 countries, it was also the largest manufacturer of two-wheelers in the world. HMCL was known to have excelled in the adoption of the post-Fordist production system (also called the Toyota Production System). HMSI was established on October 20th 1999 with an aim to produce world-class scooters and motorcycles in India. The state of the art HMSI factory, located in Gurgaon, was spread over 52 acres.
The initial installed capacity was 100,000 scooters per year, which was scheduled to reach 600,000 scooters by the end of 2005. HMSI operated on the principles that were followed by all Honda companies worldwide. Maintaining a global viewpoint, HMSI was dedicated to supplying products of the highest quality, yet at a reasonable price to ensure complete customer satisfaction. These two-wheelers, manufactured with Honda-tested technology, were backed with after-sales service in line with Hondais global standards.
Instead of being just vehicles for transportation, HMSIis products were intended to be vehicles for change: change in the way people worked, the way they travelled and the way they lived. HMSI had about 3,000 employees in all; of these 2,000 were in the worker2 category, 1,300 were confirmed workers while 700 were contract workers. The other 1,000 employees belonged to the supervisory and managerial staff. In addition, 700 persons were working as trainees and 300 were apprentices under the Apprentices Act 1960.
Almost every worker or trainee held a certificate from an Industrial Training Institute (ITI) in India. All trainees, after completion of their training, normally got absorbed into the regular workforce, whereas only about 15% of the apprentices were able to get a job with the company after their apprenticeship. Considering the region-cum-industry averages, HMSI had the reputation of being a comparatively good paymaster. In October 2005, monthly wages for workers ranged from Rs 8,150 for unskilled workers to Rs 11,200 for skilled workers, which included a Rs 2,000 allowance for home rental. Human Resource Policies at HMSI The human resource (HR) policies of HMSI were in alignment with the philosophy of its parent company, HMCL. The latter considered itself a unique organisation, having adopted some distinctive employment and production practices. It also had certain fundamental beliefs, which, among others, included the value of each individual. HMSIis philosophy advocated two fundamental beliefs: respect for individual differences, and the iThree Joysi that it wanted to promote for all organisational members. Under the Factories Act 1948, a worker is ia person employed directly or by or through any agency (including a contractor) O in any manufacturing process or in cleaning any part of the machinery or premises used for a manufacturing process or in any other kind of work incidental to, or connected with, the manufacturing process Oi. 3 In the state of Haryana, India, the minimum wage rates for unskilled, semi-skilled, skilled, and highly skilled workers in the month of May 2005 were Rs 2360, Rs 2470, Rs 2615, and Rs 2920 respectively. 2 ———————– [pic] [pic] [pic] [pic] [pic]