he year 2000 could have been decisive. That was when the board of directors at Eicher Motors decided to either shut down or sell off Royal Enfield – the company’s Chennai-based motorcycle division, which manufactured the iconic Bullet motorbikes. For all its reputation, the sales of the bike was down to 2,000 units a month against the plant’s installed capacity of 6,000; losses had been mounting for years. Though the bikes had diehard followers, there were also frequent complaints about them – of engine seizures, snapping of the accelerator or clutch cables, electrical failures and oil leakages. Many found them too heavy, difficult to maintain, with the gear lever inconveniently positioned and a daunting kick-start.

Just one person stood up to the board, insisting Royal Enfield should get another chance. He was Siddhartha Lal, a third generation member of the Delhi-based Lal family, promoters of the Eicher group of companies. Lal, then 26, was an unabashed Bullet fan: he even rode a redcoloured Bullet while leading the baraat (procession) to his wedding venue, instead of the traditional horse. “The board agreed to give me a chance,” says Lal. “It was not because of its confidence in me, but because the business was doing so badly it could hardly get any worse.”

THE PROBLEM
Despite the bikes’ fan following, the motorcycle division was bleeding

THE WAY OUT
Appealing to a wider base, making the products more reliable

THE CHALLENGE
Modernising the bikes without taking away their unique identity

THE SUCCESS
Modern technology used, but vintage look retained; improved management practices

Lal felt Royal Enfield could still be saved. The bike had its reputation, a cult following, an instantly recognisable build, and aspirational value. Changes had to be made to keep up with the times and make the bike more acceptable, and therein lay the problem. Royal Enfield fans liked the bikes exactly the way they had always been. “We needed changes to attract new customers but by doing so risked losing existing ones,” says R.L. Ravichandran, whom Lal brought in as CEO in 2005 as part of his revival effort. Ravichandran had earlier worked with both TVS Motor and Bajaj Auto. “We were in a peculiar situation,” he adds.

The change had to be a calibrated one. The mistaken notions of prospective customers had to be addressed, and any reservations about Bullet and Thunderbird, which was launched in 2002, removed. At the same time, Lal and Ravichandran were clear that the individuality of Royal Enfield bikes should not be compromised. “We did not want to go down the commuter route, but instead looked at the leisure segment,” says Ravichandran.

Retaining the bikes’ rugged looks was a given, including the build, the design of the head lamp and the petrol tank. But should the gears be shifted close to the rider’s left foot – as in most bikes – or retained on the right side? The question gave Lal and his team many sleepless nights, since long time users were dead opposed to the change. The engine was another thorny question. The old cast iron engine was a relic of the past. Its separate gear box and oil sump design made it prone to oil leaks and it seized up very often. Its ability to meet increasingly strict emission norms was also suspect. A modern aluminium engine would eliminate these problems, but it would lack the old engine’s pronounced vibrations and beat – which Royal Enfield customers loved. Laws of physics made it impossible to replicate these with the new engine.

here are many global examples of auto companies going under following a radical change in the engine of their products. Yet Lal and his team proceeded to both alter the position of the gears and design a new engine. “We retained many of the old engine’s characteristics – the long stroke, the single cylinder, the high capacity with push rod mechanism,” says Ravichandran. But the new engine, unlike the old, had hydraulic tappets, a new engine arrangement, new metal and fewer moving parts. Obviously, it did not produce the vibrations and the beat of the old, but international experts were consulted and sound mapping carried out for over 1,000 hours to ensure it produced the maximum rhythmic vibrations possible and a beat, which was 70 per cent of the amplitude of the original.

The new engine had 30 per cent fewer parts and produced 30 per cent more power than the old, with better fuel efficiency. By 2010, all Royal Enfield models had begun to use the new engine. Two other problems needed to be addressed: the quality of some of the components Royal Enfield bikes were using, and the sales experience. To tackle the first, shop floor processes were fine tuned, while suppliers were exhorted to improve quality levels. Royal Enfield also embarked on a large scale internal exercise to tone up performance. “We declared 2006 as the year of getting back to the basics,” says Ravichandran. “We also formed a field quality rapid action force to bridge the gap between customer expectations and the reality.”

Slowly, the tide turned. Engine related problems and oil leakages in Royal Enfield products almost disappeared. By 2008 dealers were reporting lower workloads. Warranty claims fell sharply too. Malfunctioning of the sprag clutch, on which the electric starter depends, declined, for instance, from five per cent in 2005/06 to 0.2 per cent in 2010/11. Royal Enfield also began conducting marquee rides to promote leisure biking. “Such steps removed the fears about our products’ reliability some customers may have had,” says Venki Padmanabhan, who succeeded Ravichandran as CEO earlier this year after Ravichandran was elevated to the board of Eicher Motors. To improve sales experience new company-owned showrooms were launched and dealerships expanded.

In October 2008, Royal Enfield launched in Germany its newly designed 500cc Classic model – inspired by J2, a 1950 model Bullet – with the new engine. It was a success, admired for its performance and fuel economy.

Emboldened, Lal launched it in India in November 2009 initially as a 350 cc bike, priced at Rs 1.20 lakh. This proved a hit too. “Now, our capacity utilisation is 100 per cent. Yet there is a six months waiting period for deliveries,” says Venki. “We plan to double our capacity soon to 1.5 lakh bikes.”

Today, Royal Enfield’s problems are of a different kind. How should it scale up without diluting brand equity? It also faces challenges from iconic global brands such as Harley-Davidson which has entered the Indian market. With other options available, will its customers continue to sit out the six-month period it takes to provide deliveries?

Driving change when the chips are down is easy: there is no other option. In Royal Enfield’s case the change worked for it. But can Siddhartha Lal and his team do the same when the going is good?

Strategy will be key

For a company, success can be defined by three parameters – market share, profitability and category substitution. Royal Enfield will probably have profits but not market share if it aims to be a niche brand. It will also not look at category substitution. That means it will be profitable but not big. This goal is easy to achieve given Royal Enfield’s traditional strengths. And the story so far has been good for a brand that was given up as a stretcher case. But going forward it needs to clock more revenue and profits.

Source : BT news
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