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Friday, January 28, 2011

New CEO wants to restore Royal Enfield to past glories

Dr. Venki Padmanabhan, Royal Enfield CEO.
"Charged with the responsibility of restoring the company to its natural place among the leading luxury classic motorcycle marquees of the world. As customers' dreams are fulfilled with great rides behind them, a threefold increase in top line and bottom line is to be accomplished by 2015."

That's the remarkable goal Royal Enfiel's new chief executive officer sets for himself on his LinkedIn profle. It sounds wonderful for the company and for its customers as well.

Dr. Venki Padmanabhan (the doctorate is a Ph.D. in Industrial Engineering from the University of Pittsburgh), was kind enough to talk with me by phone from the International Motorcycle Show in New York last weekend. He was there along with Royal Enfield USA president Kevin Mahoney to unveil two new models.

But, first, I had to look up "Top Line." What did he mean by that? Everybody knows that a company's Bottom Line is how much profit it has once expenses are deducted. According to one definition I found, Top Line turns out to be: "An allusion to a course of action that increases or reduces revenues... A company that increases its revenues is said to be 'growing its top line.'"

I found this interesting, because so much of Dr. Padmanabhan's resume emphasizes his role in lean production methods in the automotive industry. He has had a remarkable career bringing "lean" to General Motors (including at Buick and Cadillac), Chrysler and Mercedes Benz.

Me: Isn't "lean" just about the bottom line? Many people think it just means cutting costs, saving pennies.

Dr. Padmanabhan: Lean is like a religion, and like a religion, everybody takes away something different. Here is what I think. Lean is all about empowering people at the lowest levels to act as owners. It worked well in the manufacturing plant in Lansing, building Cadillacs. But I came to wonder, does that even apply to other aspects of the business, sales, marketing, design? I'm finding out that, not only does it apply, it is not being applied as we speak.

You take someone talking to a supplier. Why does it have to be beating the other guy into submission to get the absolute lowest price? What a difference it makes when we say, 'OK, you're an owner, I'm an owner; let's get together and work on solving some problems.'

I'm talking to Kevin here, we're here at the show, and he points out that the Royal Enfield is a small bike, it's 500cc, why shouldn't it be the bike of choice for young people who are taking classes to get their motorcycles licenses? You'd just need to make the seats a few inches lower.

So Kevin might raise this point and typically he's going to get a big argument from the guys at the plant and the plant will win. I would say to them, 'Look, you're an owner. Wouldn't you want to sell more motorcycles in the U.S. as training bikes?'

(At GM) we were the first to apply lean in a United Auto Workers plant, and the union guys thought, 'yeah sure, you're going to beat us down with that.' But that's not what it's about at all. It's about empowering people to make a change. That's what I take away from the "religion."

Me: What about the U.S. market? Does Royal Enfield have a chance to become a bigger player?

Dr. Padmanabhan: At the show we're two booths away from Triumph. It is gratifying to see what they have done in the U.S. From 2,000 bikes to 12,000 bikes in 10 years. That is encouraging.

Last year we built 52,000 bikes; 5 percent of them sold outside India. I look at the world and I see that there are whole countries where the Royal Enfield brand is known, and I'm not selling there. It's reasonable to think that in a couple of years we could sell 10 percent of our bikes outside India.

So I say to Kevin, you're selling 400 to 500 bikes a year in the U.S. We should (set a goal) to be selling 700 or 900.

Everything is in place. Talk about romance on a motorcycle! The first 10 minutes of the new Harry Potter movie is the Royal Enfield Classic! I tell people at the show, coming by the booth, especially the ones with kids, this is that bike!

And I don't think we talk enough about this: 80 miles per gallon. Eighty miles per gallon! There's nothing else like that on the market.

(He went on to tell me about plans to introduce a parallel twin Royal Enfield along the lines of the legendary Meteor.)

But we're going to approach this quite humbly. We really need to work on fit and finish, and we are not there yet. I can no longer say, 'well, you can't expect perfection at this price point.' People expect quality at every price.

Me: How do you explain India to Americans you meet? We tend to be surprised by the energy and technology coming out of India, and here is an Indian product.

Dr. Padmanabhan: I'm an American (he is a U.S. citizen) and I can tell you, Americans like two stories. They like the story about "Hey, I'm getting a lot for my money." And the second story is, Americans love an underdog.

But I don't think there's any need to emphasize that this is an Indian product. Triumph is a British bike, but it's made in Thailand. It's completely made in Thailand. The Royal Enfield is an international product with big design influence from Britain.

Royal Enfield is a global brand. It had a global presence before and the challenge is to have it again.

I'm a little riled up just looking at Triumph and wondering, at my production cost point, which is actually below Thailand's, how is he a 12,000-a-year bike guy in the U.S. and I'm a 500-bike guy. We have the right story behind the brand. We just need to bring bikes that are worthy of the brand.

Me: Do you ride?

Dr. Padmanabhan: As you know, I'm a car guy through and through. My wife has threatened to leave me if I ride — in India it is so dangerous. I don't even drive in India, I've been there four years and haven't driven. But I have my motorcycle license in India and I ride a little bit. We have some great motorcycle riders in our company and I am always with motorcyclists, finding out what they want.

Me: What about your family?

Dr. Padmanabhan: My wife is also an automotive engineer. We worked together at GM. She was involved in their electric car program in the U.S. and in India is working on hybrid buses. I have three kids; a 12-year-old and two 10-year-old twins; two boys and a girl, so I am very lucky.

Me: The new Bullet 500 you are introducing reminds me of the motorcycle that was so beloved in India. Did you have to bring it back because people missed it?

Bullet 500 looks like India's beloved 350, but it's thoroughly modern.

Dr. Padmanabhan: That model, the original Bullet was, I think, in production longer than any other model in history. Others have started up again, but this one never stopped. So when the iron barrel went out of production and we changed the engine and made the transmission shift on the other side and all this we were scared. We thought we were going to get spanked by the Indian public. But time passed, and they're OK with it now.

But the reason was that you didn't want to sell it in the U.S. market and other markets and have the buyer say "Oh my God, I bought a relic." So it's more modern but at the same time it has all the old features, the kick start...

Me: There are fewer exhibiters at the Motorcycle Show this year. The U.S. motorcycle market is in a slump.

Dr. Padmanabhan: Sure. It's a discretionary buy. It's a toy. So when times are hard, you don't. But Royal Enfield is maybe in a little better position than other manufacturers. We don't depend on this market to make a profit. It's really the reverse. Right now the waiting period to get a new Royal Enfield in India is nine months! We're addressing that by building a brand new factory, with a Royal Enfield museum.

Me: You never experienced that kind of overwhelming demand at GM, or Chrysler.

Dr. Padmanabhan: It's crazy. My whole life I have worked where supply was twice demand. Now I'm in a place where demand is twice supply. It's a lot more fun. You're adding jobs, creating jobs instead of reducing costs and fighting with the union. No one works just for money. You like to feel in business that you're making a contribution to society. It's much more rewarding.

Me: But there are risks to expanding too. Isn't it a bit frightening?

Dr. Padmanabhan: You know, Siddhartha Lal, the head of the company to which Royal Enfield belongs, is a motorcyclist, a very dedicated motorcyclist. And he formed a partnership with Volvo, not the car maker but the truck company, which is the second biggest maker of trucks in the world, and he has learned so much from them. You know he just passed the $1 billion level in the size of the business.

Here I am, only a $100-million division of this billion-dollar company, but his interest in us is so strong. The big risks that you would think we would be scared of, we're not. Because he's saying "Just do it."

Execution I can do. If the customers didn't want to buy, or there was no financing, then I would worry. But execution I can do.

9 comments:

  1. The challenge for a small manufacturer is developing new models around a core set of the constants that define the company's product.

    HD has been doing a pretty good job of repackaging the Sportster in new "dress" and as new models. What happens is that if the Sportster is built as say the same XL model for a number of years it becomes a disincentive to purchase a new one. When the secondary (used) markets become a competitor to new sales it time to change the model. And this change actually keeps the customer base interested and engaged as long as they are able to still identify the properties or qualities that make the marque unique.

    Looks like RE is now embarking on such a path. And the introduction of a twin cylinder RE will (in my estimation) sell well if priced competitively.

    Re: price. I think the importer along with the factory must be very careful in not allowing the price to get too high. And my sense is that the current retail prices that I see are approaching that "too high" level vis-a-vis competition from both competitive brands as well as the competition wrought by the second hand market.

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  2. Dr. P is right, I love the Indian Enfield story. It's 1/3 the reason I bought the bike. The other reasons are looks and price. This whole article was fascinating start to finish. Nice to hear the details from the CEO himself and from his Indian-American-Indian perspective.

    "Triumph is a British bike, but it's made in Thailand."

    What a revelation!! And my Triumph friends thought they were so clever jabbing me for riding a non-British Enfield.

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  3. I don't get the bit about Argentina. Royal Enfields are surely being sold there and they are listed in the global Royal Enfield site.

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  4. Thank you Jorge, I must have misunderstood. It was a terrible cell phone connection. I will take out the mention of Argentina.

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  5. He sounds like a joker with this comment : "As you know, I'm a car guy through and through. My wife has threatened to leave me if I ride — in India it is so dangerous. I don't even drive in India, I've been there four years and haven't driven. But I have my motorcycle license in India and I ride a little bit. We have some great motorcycle riders in our company and I am always with motorcyclists, finding out what they want.

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  6. It's an obvious exaggeration, the customary nod to a spouse's concern. My wife never said any such thing, but I know her feelings. I deliberately waited until the kids were grown before gently introducing the idea that I might like a motorcycle.

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  7. Hello Mr Blasco ! My first 4T motorcycle was a Royal Enfield 500 I think from the 30's, I was 17, in Argentina. Now I just bought my 4th bike, a Suzuki Freewind 650 single, to honor all those singles I rode, but is not the same, it spins to 8000rpm has 2 carbs, etc...
    I would love to ride a reliable Enfield, I didn't buy a Bullet because a lot of people told me horror stories, problems with the electrics, Chinese bearings etc...
    If I could buy a retro 500 (ou 550/600) single that can carrie me and the wife at 75 mph, is reliable and is supported
    by lots of cool acessories, I would buy it in an instant.
    I think that's what the Bullet needs, a solid mechanical reputation, we need folks with high millage stories...
    Respectfully
    George Picabea
    Nantes
    France

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  8. Pardon... 40th bike...
    George

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