It has become a fashionable acronym in today’s times but as Tarang Jain (pictured) points out, VUCA (volatility, uncertainty, complexity and ambiguity) has been around for a while. Since the time the global economy went into a tailspin with the Lehman crisis a decade ago, things have not been quite the same again.
The only difference is perhaps the intensity this time around thanks to Covid and its aftermath. It has also spawned a fair degree of geopolitical tensions with China and, more recently, Russia hogging the headlines regularly in recent times.
As the Chairman and Managing Director of Varroc says, “The last decade in automotive has been different from times before. Until the global slowdown in 2008, one could predict a certain level of year-over-year growth. Post-2009 however, the environment has changed. Now suppliers have to navigate a more VUCA world.”
The industry has had to deal with stricter regulation norms, increase in tariffs between nations related to trade disputes, Brexit, the transitions to BS IV and BS VI and now the shift happening to electric vehicles (EVs) in place of the internal combustion (IC) engine. It is quite apparent now that EVs will be the future everywhere in the world. “These conditions create their own set of challenges and it is my view that even before the pandemic we were working in a VUCA environment. Obviously, the challenges have increased since then,” continues Jain.
Experiencing zero sales in the early months of the lockdown in March 2020, a V-shaped recovery in September 2020 and now the semiconductor crisis since April 2021 which will continue into 2022 — everything is coming together all-too rapidly.
While conceding that the headwinds are fiercer now, he also makes it clear that it is not as if the company has not faced such challenges before even though their intensity is admittedly greater this time around. “We need to accept that these things are going to happen but what we have done over the years is a lot of work on our systems and processes,” adds Jain.
Clearly, all this is not something the automotive industry is used to even while Varroc, which has a host of plants in India and across the world, has been managing these challenges “to the best of its ability” over the last 20 months. “From my point of view, it depends on how you have handled your business over the years and how strong you are,” he says. There is also no point complaining about the present situation since “you need to live with it and do business here”. Yet, the fact remains that for any company to have steered its business adroitly over the past years in the automotive sector has not been easy.
“At present, we are in a situation where there is a lack of certainty on what could be the sales in the next month due to the semiconductor shortage. This is a global problem,” he adds. The positive is that the demand for vehicles in the market remains high but this does not “help us” in the short term given the current supply shortage situation.
At Varroc, the priority has been to focus “very closely” on cost management and increased productivity enabled by adopting digitalisation across business processes and also on the shop floor. “Digitalisation has helped us derive better analytics which, in turn, has contributed to better and quicker decision making. On the shopfloor also, we have been able to also sustain and improve the end quality of our products for our customers,” says Jain.
Walking the tech talk
Beyond the immediate and obvious challenges as a business, Varroc continues to work on a number of initiatives which he believes are critical for the future. These include investing in engineering and developing new technologies — for example, HD (high definition) technology in the lighting business and affordable low-cost innovations such as the surface LED (light emitting diode) which is much cheaper than OLED (organic light emitting diode) technology.
Varroc has been investing in R&D for more than 20 years now and is completely self-reliant, asserts Jain. The next important thing is driving efficiencies and productivity on the shopfloor through low-cost automation and digitalisation of processes. Additionally, retaining talent across the organisation through more robust systems and processes is as vital. This happens by way of more transparent reward and recognition processes, career paths for high potentials, campus programmes and effective performance management systems.
Jain stresses once more on the importance of digitalisation across all business processes, horizontally and vertically right from RFQ (request for quote) receipt to aftersales and service, alignment with customers as well as suppliers, and crucially on the shopfloor. “This enables speed and better decision making through accurate data analytics,” he says. The future strategy will be one which maximises shareholder value and ensures growth of employees as well as other stakeholders. The focus now is on achieving free cash flow (FCF), profitability and return on capital employed. “One will have to relook at growth and market share objectives more closely so as not to reduce FCF generation. Further, we look now at other sectors where we can commercialise our physical and technology assets,” says the Varroc chief.
According to Jain, the pandemic and associated impact has made Varroc reassess strategy. There are also no two ways about the fact that VUCA is here to stay. “We will continue to grow in the lighting space where we are No 6 globally and in the two- and three wheeler space where we are for the most part No 1 or in the products we design, develop and manufacture. However, the EV powertrain and ADAS (advanced driver-assistance systems) electronics is where the company will drive disproportionate focus in the coming years,” he says.
From Varroc’s point of view, the focus on overall costs and low-cost innovation has paid off since it is finally engineering and innovation that will be the key differentiators going forward. Jain also believes that the CEO of today needs to act with agility and speed. This does not mean taking crazy or quick decisions but one needs to reflect and always adapt to the changing environment. After all, things are happening at a frenetic pace but this is also the time to take judicious decisions while constantly focusing on teamwork.
“One has to invest and grow but one has to be mindful of where you want to play and how you want to win every time,” says Jain. After all, during these disruptive times, even while companies are going all out to keep costs in check, they are still more than what they like them to be.
This is where planning and strategy become even more important from the viewpoint of sustaining and improving profitability. The underlying message is that it is pointless for companies to be in a mad rush only for market share where it makes more sense to focus on generating FCF instead. “As a CEO, one has to understand and realise this is not an ego issue but to reflect and say that ultimately one has to take certain measured and intelligent solutions for the future,” says Jain.
This feature was first published in Autocar Professional's December 15, 2021 issue.