'Layoffs should be the last recourse to cut costs'

Corporate Executive Board (CEB), the world’s largest business advisory platform for top executives with 20,000 CXOs across over 5,000 top global companies as clients, has developed a large repository of business insights and strategies for multiple industries and functional areas.

Through this series, CEB, along with DNA, delves into the minds of India’s top executives to try and understand what makes them and their companies tick. CEB caught up with Vipin Sondhi, the managing director and chief executive officer of JCB India Ltd for a chat. Sondhi, an IIT Delhi and IIM Ahmedabad alumnus, has earlier worked with Honda Siel Power Equipment, Tata Steel and Tecumseh India before moving on to JCB. Excerpts from an interview:

Tell us about JCB India…
JCB India is the largest construction equipment manufacturer in India. It is the largest privately-held construction equipment company in the world and also finds its name in both the Oxford and Collins dictionaries. One of two equipments sold in India is manufactured by JCB.

How were you impacted by the global economic slowdown?
By far, 2007-08 was our best year; we sold over 17,000 machines and had a gross turnover of over Rs 3,500 crore. Post-slowdown in 2008-09, we dropped to about Rs 3,000 crore. There were five things that impacted us during the crisis:
1. Volatility in input prices, which impacted existing contracts as predicting costs became difficult

2. Poor lending and financing conditions

3. Political instability and uncertainty

4. Collapse of global financial institutions and a resultant fear psychosis among investors

5. Collapse in the Indian stock market because of our linkages with the global financial system

All this happened simultaneously in a period of just 3-4 months, and no one got any time to react.

What were the first three things you did when faced with this situation?
We took early action by cutting back on production and reducing inventory, thus reducing our need for cash and focusing on two key factors — quality and cost. Simultaneously, we undertook a huge communication exercise right across our value chain, including our dealership network right up to our suppliers. Wherever there was a strain, either financial or logistical, we pitched in and helped suppliers, dealers and even our own workforce cope with the crisis.

We counselled dealers to cover overheads through service and part sales by interacting with each other and following best practices among themselves.

Any special innovation in your cost-cutting drive?
JCB follows a ‘sense of urgency’ or ‘get started’ approach, which actually stems from our founder’s core belief. We created the Programme for Accelerated Cost Elimination, or PACE. Everyone signed a pledge and it turned into a big event. It actually helped people identify with being a part of the solution rather than the problem.

What are the pressing challenges you are facing right now?
In a nutshell, the biggest challenges are still quality, cost and growth. Get ready for the upturn but remember the situation is still very volatile. Prepare for the growth phase and concentrate on cutting costs without losing focus on quality.

How do you address management issues?
I follow a very strong review mechanism, which may at times not be on paper but is more about meeting people and getting feedback.

No committees for me — cross-functional teams are what I believe in, because no one department has the solution to all issues. One also has to be people-friendly and sensitive to their needs.

Engagement and morale have to be high in the workplace for productivity to be optimised.

What are the most common management mistakes you see peers making?
‘Layoffs’ are often used as a first recourse to cost-cutting whereas they should actually be the last. The collateral damage done to employees’ morale and productivity is often incalculable.