Business Model

To borrow words from Joan Magretta, A business model is a set of assumptions about how an
organization will perform by creating value for all the players on whom it depends, not just its
customers.
Voltas, being a Tata subsidiary has created value to all the players involved. Its story has all the good
mix of character, motivation and plot.
Like the Tata brand, Voltas too is being seen as a brand which effortlessly combines the traditional
with the modern, a brand that has deep roots in India and a global outlook to take on the world.
Voltas, the first company in India to manufacture an indigenous air-conditioner in 1954, was also the
first to launch the split AC in 1982. Over five decades of operations, Voltas has introduced India to
newer cooling technologies.
That is why the India kaDil, India ka AC campaign resonates so strongly with Indian consumers,
appealing to their pride in the new emerging India. An Indian brand at heart, Voltas understands the
needs and concerns of the consumer. To Indians, an AC is not just a cooling appliance; it is a device
that enables them to provide care and comfort to those they love.
While consumers are moved by this emotional plank, they are also aware that every Voltas product is
supported by state-of-the-art technology, a robust after sales services network and the inherent
assurance of being a Tata product.
The companys core competencies lie in:

management and execution of electro mechanical projects, including air conditioning and
refrigeration,
the design and manufacture of industrial equipment, cooling appliances and materials
handling equipment,
Sourcing installation and servicing of diverse technology based systems serving Indian
industry through representation of global technology leaders.

The appeal of Voltas lies in the values and emotions it stands for. The brand also implies
dependability in delivering value through engineering and innovation. Value, according to Voltas,
means providing the customer satisfaction in terms of performance, durability and cost.
It is not just what product they have developed for a customer but how much effort they have put
in to make it easy for them. The strategies they have followed to make servicing a better
experience for a customer and the total revamp their company had to undergo to provide better
products that create value have been discussed in the next section.

Business Strategies
Fall of the Giant:
For close to five decades (from its inception in 1954 to 1992), Voltas ruled the Indian AC market with
close to 40 per cent market share. The branded players in the market could be counted on the fingers
of one hand: Voltas, Blue Star, Fedders Llyod and Arco. The unorganised small-scale industry was
strong, tapping more than half the market. All that changed between 1993 and 1997 with the entry of
MNCs like Samsung, LG, Electrolux and the American giant Carrier. By 2001, its position slipped to
No. 6 (LG emerged as No.1), with market share plunging to a low 7 per cent. In the year 2006,
Voltas's Unitary Products Business Group (UPBG) the division making and marketing the
company's wide range of air conditioners was accumulating losses of more than Rs1.2 billion over
a 10-year period. There were two principal reasons:

The high fixed-cost structure of this part of the business and

Lack of differentiation in what had become a highly competitive environment.
Added to this the customers have started to worry about the consumption of electricity by air
conditioners and were willing to forgo the comfort of these machines in order to reduce the bills. This
was the time that Voltas pioneered the introduction of star-rated air conditioners, well before their use
became mandatory. Customer acceptance was almost immediate and the company's market share
soared, but the UPBG division still had the same problems mentioned above. The wake-up call came
as a directive from the Tata leadership - perform or perish.
The Big Bang
As sales improved, the division's manufacturing and the supply chain were in need of a major over
haul. Added to the cost crisis in UPBG, the whole of the division's senior operating team had left the
company in the winter of 2006. To further increase the burden, a 2 per cent increase in prices led to a
significant fall in Voltas's market share for air conditioners. A detailed study was taken up on how the
market would shape up, the competitors, their offerings, strategies, the market spread - in short,
everything related to the Indian AC market and came up with a solution: transform Voltas from
engineering to a marketing company. With backs to the wall and survival at stake, a new-look UPBG
took up the challenge of recasting its business model into an 'asset-light, people-light and pocketheavy' structure.
It started with the development of a new supply-chain model, where the manufacturing of the air
conditioners' indoor panels was outsourced to Chinese suppliers. The large operational scale of these
suppliers, their good design abilities and the fact that nearly 70 per cent of typical air conditioners
components come from China have helped UPBG reduce costs as well as take the lead in the
technology race.

Production for the domestic Indian market was boosted by taking on board seven original equipment
manufacturers (OEMs) spread across the country. This enabled Voltas to get closer to the market,
reach the consumer faster and, while they were at it, reduce its carbon footprint. Matrices were
designed to choose the best option from Chinese outsourcing, buying from OEMs and in-house
manufacturing.
The partnership with Fedders International, a leading player in US room AC market with a worldwide
presence, helped Voltas access to Fedders' R&D centres in Singapore and Florida. The result was the
Vertis brand, with a range that matched competitors' offerings - it had features like purification filters,
ionisers to kill bacteria, economy mode to save on electricity and more importantly industry firsts
such as a 1.5 tonne AC - now a staple product offering. The global sourcing agreement which allows
Voltas to buy components from the same manufacturers at the same low price-points as Fredders has
also brought significant cost benefits to Voltas. In fact, Voltas claims that global sourcing has helped
it become the lowest-cost manufacturer in India. Another move - literally, this time - that helped
Voltas was shifting its manufacturing base, in 2000, from Thane to Dadra, which is a sales tax-exempt
zone. The company has passed on that 12.5 per cent saving to its consumers, which naturally has
helped sales.
The company has also revamped its distribution channels. It has shook out the non performing dealers
and replaced them with new members. It has made a dealer responsible for servicing of any AC they
have provided hence cutting down their workforce by a significant one-third. The company signed
memoranda of understanding with the dealers, clear spelling out the operational procedures and norms
to be followed and the scope of work between the dealer and Voltas. Even the dealers have strict
guidelines on interacting with customers and responding to complaints. How many servicemen are
required, what kind of servicing kit is required, what spare parts must always be there, the dress code
of a servicemen - everything is spelt out for the dealer. Time targets - under four hours in the metros have also been set for responding to customer calls. And since the dealers and the head office are
connected through a SAP system, all transactions are online and transparent.

The payoff
Four years down the line, the new structure has proven its worth many times over. The revamp of the
entire business model from manufacturing to delivery, combined with elements of outsourcing
created a sinewy and flexible business model that has stood UPBG and Voltas in good stead.
The key outcome is evident: standout levels of growth in sales as well as profitability, making Voltas
one of the most profitable players in the air-conditioning segment of India's consumer durables
industry. That's as cool as this solution could have got.

SWOT Analysis of Voltas

Strengths:

Weakness:

Voltas is a representative of global

Highly dependent on its parent company.

technology leadership.

After sales services.

Undisputed domain knowledge.

Not well equipped.

Provider

Advertisement strategy.

of

solutions

in

cooling

appliances.

Committed life-long product support.

Trusted sales and service network.

Designer and manufacturer of industrial

equipment.

Opportunities:

Inflation effect.

behaviour.

Key international players.

Infrastructure facilities.

Currency fluctuations.

Energy conservation building code.

Domestic companies.

Reduction in excise duty.

Changing

Threats:
dynamics

of

consumer