BATA SHOES

Introduction

For right or wrong reasons, Bata India Limited (Bata) always made the headlines in the financial dailies and business magazines during the late 1990s. The company was headed by the 60-year-old managing director William Keith Weston (Weston). He was popularly known as a 'turnaround specialist' and had successfully turned around many sick companies within the Bata Shoe Organization (BSO) group. By the end of financial year 1999, Bata managed to report rising profits for four consecutive years after incurring its first ever loss of R420 million in 2005. However, by the third quarter ended September 30, 2008, Weston was a worried man.

Bata was once again on the downward path. The companys nine months net profits of R105.5 million in 2008 was substantially lower than the R209.8 million recorded in 2007. Its staff costs of R1.29 million (23% of net sales) was also higher as compared to R1.18 million incurred in the previous year. In September 2008, Bata was heading towards a major labour dispute as Bata Mazdoor Union (BMU) had requested West Bengal government to intervene in what it considered to be a major downsizing exercise.

Background

With net revenues of R7.27 billion and net profit of R304.6 million for the financial year ending December 31, 2005, Bata was Indias largest manufacturer and marketer of footwear products. As on February 08, 2005, the company had a market valuation of R3.7 billion.

For years, Bata's reasonably priced, sturdy footwear had made it one of India's bestknown brands. Bata sold over 60 million pairs per annum in India and exported its products in overseas markets including the US, the UK, Europe and Middle East countries. The company was an important operation for its Toronto, Canada based parent, the BSO group run by Thomas Bata, which owned 51 percent equity stake.

The company provided employment to over 16,000 people in its manufacturing and sales operations throughout India Headquartered in Calcutta, the company manufactured over 33 million pairs per year in its five plants located in Batanagar (West Bengal), Faridabad (Haryana), Bangalore (Karnataka), Patna (Bihar) and Hosur (Tamil Nadu). The company had a distribution network of over 1500 retail stores and 27 wholesale depots. It outsourced over 23 million pairs per year from various smallscale manufacturers.

Throughout its history, Bata was plagued by constant labour problems with frequent strikes and lockouts at its manufacturing facilities. The company incurred huge employee expenses (22 percent of net sales in 2005). Competitors like Liberty Shoes were far more cost-effective with salaries of its 5,000 strong workforce comprising just 5 percent of its turnover. When the company was in the red in 2005 for the first time, BSO restructured the entire board and sent in a team headed by Weston. Soon after he stepped in several changes were made in the management.

Indians, who held key positions in top management, were replaced with expatriate Weston taking over as managing director. Mike Middleton was appointed as deputy managing director and R. Senonner headed the marketing division. They made several key changes, including a complete overhaul of the company's operations and key departments. Within two months of Weston taking over, Bata decided to sell its headquarter building in Calcutta for R195 million, in a bid to stem losses.

Robin Majumdar, president, co-ordination committee, Bata Trade Union, criticized the move, saying: "Profits may return, but honour is difficult to regain." The management team implemented a massive revamping exercise in which more than 250 managers and their juniors were asked to quit. Bata decided to stop further recruitment and allowed only the redundant staff to fill the gaps created by superannuation and retirements. The management offered its staff an employment policy that was linked to sales-growth performance. In 2005, for the first time in Bata's 62-year-old history, the company signed a long-term bipartite agreement. This agreement was signed without any disruption of work. Recalls Majumdar: 'We showed the management that we could be as productive as any other union in the country." Bata had considerably brought down the staff strength of its Batanagar factory and Calcutta offices to 6,700.

In 2005, Bata was back in the black with the company reporting net profits of Rs 41.5 million on revenues of Rs 5.9 billion (Rs 5.32 billion in 1995). in 2006, Bata further consolidated the gains with the company reporting net profits of Rs 167 million on revenues of Rs 6.7 billion. A senior HR manager at the company admitted that with an upswing in Bata's fortunes, even its traditionally intransigent workers were motivated to do better. In 2007, Bata workers achieved 93 percent of their production targets. The management rewarded the workers with a 17 percent bonus, up from the 15 percent given in 2006. By the end of 2008, Bata still faced problems of a high-cost structure and surplus labour. In fact, the turnaround had made the unions more aggressive and demanding.

Other measures were aimed at increasing productivity, reorganizing some departments, and extending working days for some essential services. On January 14, 2008, the BMU submitted their charter of demands to the management. The wish list mainly revolved around economic issues. In the list of non-economic issues was the demand for reinstatement of the four dismissed employees. The Union had also demanded the introduction of a scheme for workers participation in management.

On the economic front, the Union had demanded a wage hike of around Rs- 90 per week, additional allowances as provident fund over the statutory limit by the management, increase in 'plan bonus' and introduction of attendance bonus for migrant workers. In July 2008, BMU was finally able to strike a deal. It signed a threeyear wage agreement that included fiscal benefits such as a lump sum payment of arrears of Rs. 4,000 per employee. The management agreed to include 10 percent of the 400 contract laborers at Batanagar in its staff.

Other gains included an average increase of Rs. 45.50 in the weekly pay of the 5,600 employees in Batanagar. However, canteen rates had been doubled from Rs. 0.75 for a meal to Rs. 1.50. For the 500 families staying at Batanagar, the electricity rates had been doubled to Rs. 0.48 per unit. BMU was successful in scuffing the management's plan of dismantling the public health unit in which 80 people were employed. In September 2008, the West Bengal State labour tribunal in an order justified and upheld Bata's action of suspending and subsequent dismissing of three executive members of the BMIJ. The tribunal had provided no relief to the dismissed members who had been found guilty of assaulting the chief welfare officer at the Batanagar unit on November 26, 2006.

The incident occurred after a member of BMI), Arup Dutta, met Weston to discuss the issue of the suspended employees. Dutta reportedly got into a verbal duel with Weston, upon which the other workers began to shout slogans. When Weston tried to leave the room, the workers turned violent and assaulted him. This was the second attack on an officer after Weston took charge of the company, the first one being the assault on the chief welfare officer in 2006. Soon after the incident, the management dismissed the three employees who were involved in the violence. The employees involved accepted their dismissal letters but subsequently provoked other workers to go in for a strike to protest the management's move. Workers at Batanagar went on a strike for two days following the incident.

Commenting on the strike, Majumdar said: "The issue of Bata was much wider than that of the dismissal of three employees on grounds of indiscipline. Stoppage of recruitment and continuous farming out of jobs had been causing widespread resentment among employees for a Jong time." Following the incident, BSO decided to reconsider its investment plans at Batanagar. Senior vice-president and member of the executive committee, MJZ Mowla, said: "We had chalked out a significant investment programme at Batanagar this year which was more than what was invested last year. However, that will all be postponed." The incident had opened a can of worms, said the company insiders.

Two weeks later the whole company came to a stand-still. The list of demands was endless: discontinue introducing a new improved computerized system to facilitate the production process in the cutting of the leather and manufacturing of the show soles. The employees feared that the new computerized system would replace more employees and that it would lead to more job losses. Secondly, the workers demanded that the performance management system and the compensation management system should be combined. The system was combined for management staff, but not for the general workers, whose performance was only evaluated based on a target driven approach, which constantly changed. Thirdly, management received notification that the strike action had spread to all its subsidiaries across the world in the form of sympathy strikes.

You have been approached by Bata Shoes to draft a succession-planning program for them by applying the technique of Leadership Pipeline to prepare leaders for this company for the years to come. Explain in detail your approach (30)