Business Modelling Bharat Forge

1. RE-INVENTING
BUSINESS MODEL
Bharat Forge
ABSTRACT
How Bharat Forge Re-InventeditsBusinessModel toStay
RelevantandMaintainItsCompetitive Advantage
Group A
Michelle D’Souza,Amol Deshpande,VinodMaliyekal,
SanmeetDhokay,MandarRisbud

2. Contents
Bharat Forge – Background.................................................................................................................2
Analysis of Old Business Model............................................................................................................4
Vision and Mission..........................................................................................................................5
Functional Strategy.........................................................................................................................5
Value Proposition and Business Model.............................................................................................8
The Existing Value Loop...................................................................................................................9
Bharat Forge – The Re-invented Business Model ................................................................................10
Change in Choices and Their Consequences....................................................................................10
The Value Loop.............................................................................................................................13
Conclusion .......................................................................................................................................14

3. Bharat Forge – Background
Bharat Forge Ltd (B.F.L) wasstartedby NilkanthraoKalyani in1961 in Pune.Todayitisa part of the USD
2.5 billionKalyani Group,withinterestsin automotive,power,oil and gas,construction&mining,
locomotive, marineandaerospace industries.
It isthe world’slargestforgingcompanywithfacilitiesinIndia,Germany,France,SwedenandNorth
America.Itmanufacturesa wide range of highperformance componentsforboththe autoand non-auto
sectors.It isthe largestIndianexporterof automotivepartstothe global automobile industryandhasa
global clientele spreadacrossall majorcontinents.
B.F.L hasa customerbase that includesthe top-5global commercialvehicle andpassengervehicle
manufacturers,andvirtuallyeveryglobal OEMandTierI supplierinthe automotive space andawide
range of marquee customersinthe industrial sector,BFLtodayisamongthe few global component
manufacturerswithcapabilitytoofferfrontlinedesignandengineering,dual shore manufacturing
capability,andfull-servicesupplycapability.
The company is now looking to diversifybeyond automotive sector and has embarked on an
ambitious journey to redefine its existingpresence across several critical businessverticals such as
oil & gas, power, rail & marine, aerospace, metals & mining, construction and general engineering.
(Bharat Forge Limited).
Bharat Forge – Global Capacity and Workforce (Annual Report FY16-17)
Timeline
1961 – Companyincorporated(incollaborationwithSteel
ImprovementandForge Co.,USA (SIFCO),Commercial productionof
forgingsbeganin1966 withthe settingupof a plantat Mundhwa
NearPune)

4. 1982 - BalchandraInvestmentPvt.ltd.,becameawhollyownedsubsidiary
of the Companyandconsequently,adeemedpubliclimitedcompanyunder
Section43-A of the CompaniesAct,1956.
1983 - AnagreementwasconcludedwithTokyoDropForgingCo.,Ltd.,of
Japan fortechnologyupgradation.
1984 - Forge Investment Ltd.,andMundhwaInvestmentLtd.,became
subsidiariesof BalchandrainvestmentLtd.,witheffectfrom4th
January.
1985 - The installedcapacityof steel forgingsatPune wasfurther
increasedfrom30,000 tonnesto 40,000 tonnesperannum.
1995 - The Companyenteredintoatechnical knowhow andassistance
agreementwithMetalartCorporation,Japanforthe manufacture of
small precision forgings.
1998 - The Companydecidedtogo aheadwiththe implementationof the
Mundhwa projectforadditional forgingscapacityof 38,000 Tonnes.
2003 – Acquisitionof Carl Dan PeddinghausGmbH(CDP) of Germany
2005 - Bharat Forge acquiresImatraKilstaAB,Sweden&ScottishStampings,
Scotland.Bharat Forge Ltd signedaJointVenture contractwithFAW
Corporationforits forgingbusiness(Entersthe ChinaMarket).
2008 -AlstomandBharat Forge setup a JointVenture tomanufacture
state-of-the-artsuper-critical powerplantequipmentsinIndia
2014 - Saab andthe Kalyani Groupsigna StrategicPartnershipforthe manufacture of Air
defense inIndia.
2016 - Boeingawards777X titaniumforgingcontractto Bharat Forge
(MoneyControl)

5. Analysis of Old Business Model
Bharat Forge since itsinceptiontothe late 80’s – earlyninetieswasafirmfocusedon basic forgingwork,
whichwaslabor intensive andlowskilledwork,employingprimarilybluecollarworkers.Thismeantthat
BFL wasn’ttoo focusedondesignorvalue addedwork,butratheron low cost as itsmainvalue
propositiontoitsclients.
Manufacturingwaslimitedtoa commercial hammershedwithacapacityof 3000 MT. The focuswas on
large industrial scale forgingandnotat the massconsumerfocusedmarketlike automobilesetc.The
workshopwasnotable to utilize full capacity.
Bharat Forge startedoff in the earlydaysby supplyingtoKirloskarIndustries,whichwereinneedof
large forgingsforitsengineeringdivision.Bythe eightiesBFLhadestablisheditself asalarge domestic
manufacturerwithsteadyexportstoRussia(USSR) – Howeverithadonlysporadicordersto the western
world.BFL hadproblemswithconsistencywithlarge orders,productionwasplaguedwithqualityissues.
What is the value proposition?
 Large installedcapacityforlarge forginginIndia.
 Low cost producer(Cost Leader).
 Close interactionwithall majorOEMManufacturesinthe country.
What are the target markets?
 Primarilyfocuswasthe domesticmarket(BFLhad55% marketshare for heavyforging&85%
marketshare for machinedcrankshafts)
 Russia(OldUSSR) providedasteadyexportmarket
 Westernnations(USinparticularwas of interest,butreceivedonlysporadicorders)
Where doescompetitive advantage exist?
 TrainedManpower
 Highlyinvolvedmanagement
 Large InstalledCapacityforanydomesticIndianManufacturer.
 Low cost of production

6. Vision and Mission
BFL's old vision wasto be the no. 1 forging company in the world by 2008. Its new vision is to
buildIndia’seconomicbackbone,strengthennational capabilitiesand ensure abiggerglobal imprint–for
themand forthe country. Theysee themselvesnotasan engineeringcompanybutnationbuilders
workingforthe developmentof the economyandthe country.
Mission:
 To use its strong platform of metallurgical knowledge, design & engineering capability and
manufacturing prowess, to create a strong position for itself in these sectors.
 To grow its business aggressively by accessing global markets
 To be among the top three global players in its industry segment
 To set global industry benchmarks in cost, quality, technology, speed-to-market and customer
service
 To expandintonewhorizons in order to transform the company from an auto component supplier
to an engineering company with diverse complementary businesses in new high growth sectors.
 To listenandrespond tothe needsof itscustomers, associates and business partners and honoring
their individual value.
 To be committedtoanentrepreneurial spirit that fuels the growth of our companies and increases
shareholder value
Functional Strategy
BFL enjoyed a large global market share with a strong suite of customers that included almost every
automotive OEM and Tier 1 supplier globally. The biggest auto companies in the world from Audi,
Volkswagen, Volvo, Renault, Ford, Toyota, Daimler, BMW, Chrysler, General Motors, Honda and more
depended on BFL to provide their most complicated forging requirements like machined crankshafts,
front axle beams from BFL.
BFL's competitive advantage is its unmatched capabilities to produce complex forgings of both
aluminum and steel. BFL's biggest strengths were its strong and far-sighted leadership, competitive
businessstrategiesandacustomer-oriented organizational culture and structure and it worked hard to
develop functional strategies to further these areas.
BFL focused on creating sustainable competitive advantage by taking strategic initiatives in areas of
marketing, technology & product development, operations and human resources.
Customerstrategy
 Constantlyextenditspartnershipswithmajorglobal OEMsandTier 1 companies
 Developcustomerrelationshipsandmove fromasuppliertoa developmentpartner andfull service
providerforcustomersfromdesigntodeliveryof finishedproducts.
 The company hasfocusedonbuildingstrongdesignandengineeringcapabilitiesateachof itsglobal
locationstorespondtothe global customers’preference forsuppliershavingsuchfacilitiescloseto
theirproductdevelopmentfacilities.

7. Organizational Strategy
 Movedaway frommulti-level organization to3layeredstructure forfasterdecisionmaking
 Recruitingfreshwhite collaremployeesratherthanre-trainolderemployees
 Cut manpowercostsbyofferingVRS
 Systemdrivenmanagement
 Optimizedoperations
Financial strategy:
 Reduce financial coststhroughrepaymentof highcostloans
 'Dollarize'the balance sheeti.e.mobilizedebtfrominternational capital marketswhichhadlower
interestrates.
 Its exportswere anatural hedge againstcurrencyrisks
Manufacturingstrategy
 Buildworldclassmanufacturingplantsandreachingglobal scale capacitiesinitsline of businesses.
 Buildfacilitiesclose tothe global customer
Diversification strategy
 Diversifieditsproduct-marketportfoliotocaterto more and more customers
 Expandedintosectorslike railways,aerospace,oil andgas,power,constructionandengineering
 Enteredalternate avenuestousheropportunitiesofferedbythese sectorsandde-riskthe revenue
model of the company
Acquisition:
 Pursuedacquisitionto accessnewgeographical customers,enhancingtheirtechnological
capabilitiesandexpandingproductrange.
InnovationStrategy:
 Achieve exponential growthonthe basisof productdevelopmentwhichrequirescapabilitiesof
manufacturinginnovative productsanddevelopingindigenoustechnologies
 Huge investmentsonR&Dto delivermore value throughtheirproductsandprovide mostinnovative
solutionstotheircustomers
Risk MitigationStrategy:
 Pursuedthe Dual shore modelof havingmore thanone manufacturinglocationforall core
components. Itinvolveshavingone locationclosetothe global customerandone basedina low
cost countrylike India. Since the global automobileindustrywasthe majorcustomerof the forging
industry,andthe industry hadbeen underpressure toreduce coststhroughincreasedoutsourcing
as well aswell assharingresponsibilitiesthroughsupplychainintegration,BFLbeganto pursue the
dual shore model. BFLnow hasa designandengineeringandforgingmanufacturingcapabilityfor
all itscore productsat leastattwo locationsandinmost casesmore than twocases.
 Growingexportsandenhance global presence tomitigate risksrelatedtoeconomicdownturns

8.  Manage financingcosts,mobilizinginternational debtswithlowerinterestrates,currencyrisks
were mitigatedusingexports,improvedROCEbyreducingexposure tofinancial assetswhichgave
lowerreturns

9. Value Proposition and Business Model
 Cost: -
BFL was able tokeepdownthe costs downbyhavinglarge capacitytherebyproducinglarge
volumes.
 Quality: -
Dr. Baba Kalyani,MD of BFL usedtopersonallysuperviseoperationsby visitingthe production
floorsthusensuringthatnocompromise ismade withregardsto the quality.
 Scalability:-
BFL had the abilitytoscale up as perthe customersexpectationof demandbyaggressive
decisionmaking.
 Employee Connect/Relations: -
Employee trainingprograms,Loanfinancingfor personal vehicles,earlyretirementoptionsfor
olderemployees,Knowing60-70% employeesbynames
 CustomerFocus: -
Stocking30 daysinventoryinwarehouseslocatedclosetothe customersothat customer’s
orderscan be fulfilledquicklymanytimes.Also,keepingaresidentengineerandpeoplewith
multiple entryvisasreadyhelpedinhavingstrongcustomerfocus.

10. The Existing Value Loop
Conventional
Hammershop
Low Consistency&
Quality
Manual
Process
HighRejection
Low Design
Competence
Low Production
Output
Large Forgings
EmployingBlue
CollaredWorkers
Conventional
VendorMgmt
ServingDomestic
Market
HighInput
Costs
High
Overheads
Conventional
FinancingOptions
LimitedAvenues
to Export
LessExpansion
Scope
High
Competition
LesserMargins/
LowerProfit
Low ROCE

11. Bharat Forge – The Re-invented Business Model
As BFL was experiencing downturn in the industry, it cautiously decided to make slow but
important changes to its existing business model. These changes were made through making
appropriate changes in certain choices. They can be represented in a structured manner in
following three categories.
Change in Choices and Their Consequences
1. Choicesrelatedtomarketselectionandtargetcustomersegment
a. Entry intosmall forgingsmarketinsteadof large forgings
Historically,BFLhadconcentratedonmanufacturinglarge forgings.Ithaddevelopeda
reputationinlarge forgingsmarketbutthe future growthwasplateauing. The
commercial vehiclesectorwasfacinga downturn.However,atthe same time,the
passengercar industry inIndiawasshowingexplosive growth.Spotting this,BFLdecided
to cater to thisnew,growingsectorbyincreasingitspresence insmall forgingssegment.
The small forgingssegmentof forgingindustrywashighlyfragmentedhavingmany
small-sizeplayers.BFLusedthisopportunitytouse itssize asan advantage andinstalled
3 newforgingpresslinesleading tototal capacityof 9000 MT. ThisenabledBFLtoenter
intocontracts withmajorglobal customerssuchas Toyota,Ford andDaimlerChrysler.
b. Providingassembledforgingsinsteadof raw forgings
BFL’s relationshipwithautomotivemajorsof the worldwasstrengthening. BFL
witnessed thatthese global customers(likeToyota,Fordetc) are showinga growing
preference tohave componentsinaready-to-assemble formratherthansource
individualcomponentsfromone supplierandgetthemassembledfromasecond
supplier.Realizingthis,BFLmade a strategicchoice of supplyingcomponentsin
machinedforminsteadof oldwayof providingraw forgings.Thisrequiredtakingrisk
(especiallyinthe periodof slow down),makingfreshinvestmentsandset-upnew
productionlinestoproduce finishedmachine crankshafts.Thischangedthe entire
positioningof BFLfrom a “generic”forgingsuppliertoa “preferredstrategicsupplier”to
bestglobal automakers.Thisfurtherincreasedshare of machinedcomponentsin
company’s total business.
c. De-riskingbusinessbyfocusing onEurope market
BFL was a proven,majorplayerindomesticforgingmarket.Ithadalsosecuredsome US
contracts by servingcustomerslikeRockwell International.However,withaslowdown
in1996-1998 inthe US heavytruckindustryanda simultaneousslowdowninIndian
marketnecessitatedachange in focus.To de-riskitsbusinessfromIndiaandUS
slowdowns,BFLmade achoice to improve itsgeographicspreadbyreachingoutto
customersinEurope.For this,BFLacquiredthe orderbook (andhence,the market
presence andbrand) of Dana Corp’sSpencerEurope Limited.Thisgave BFLitsveryfirst

12. identifyinEurope market,butdidnotgive anyproductionbase.Later,BFLalso acquired
a German firmCDP whichprovidedassets,IPandlaborforce in Europe.
2. Choicesrelatedtoproductionprocessandoperations
a. Usingeducated,multi-skilledemployeesinProductionDepartmentinsteadof blue
collarlaborclass
BFL had acquiredgreatdepthinforgingas a technologyandasa process.However,it
still ranall of itsoperatingwithblue collarworkersinsteadof amix of skilledworkforce
+ technology. Toproduce forgingswithprecisionandconsistency,BFLhadthe choice of
upgradingitsexisting(blue collar) workforce.However,itwouldhave requiredto
change existingworkculture.Instead,BFLchose torecruitthe forgingfactorieswith
freshlywhite-collaremployees.Eachof themwasat leasta graduate.And thenBFL
trainedtheminuse of new technologytoproduce forgingswithprecisionand
consistency.Ineffect,BFLde-skilledthe productionprocessandreduceddependence of
blue-collarworkerswhile atthe same time,improvedprecisionandconsistency.
b. Modernizingoperations(usingpresslineinsteadof hammershop)
BFL had a good andwell trainedstaff butthe productionprocessremainedhighly
manual.It waspossible toconsistentlyproduce highqualityproductswithmanual
process.BFL chose to modernize the facilities.Itdecidedtoreplace the muscle power
withbrainpower.BFL investedRs.1.5billiontoinstall twostate-of-the-artforgingpress
linesfromMullerWeingarten,Germany,withacombinedcapacityof 22,000 MTs.
3. Choicesrelatedtofinancing
a. Dollarizingthe balance sheettoreduce costof financing
In the economicdownturnof 1996, BFL activelyfocusedonimprovingitscoststructure.
One critical elementof reducingitscostreductionstrategywastobringdowncost of
financing.Forthis,BFLstartedmobilizingdebtfrominternational,low-costcapital
marketsinsteadof domesticones.By2004, 88% of BFL’sdebtwas inthe formof foreign
currencyloans.Since BFL had alreadystartedexportingitsforgingstoEurope andUS
markets,BFL wasnaturallyshieldedfromthe currencyfluctuationrisksthatemanated
fromits foreigncurrencyborrowings.
b. Reducingexposuretolow-earningfinancial assets
Afterdollarizingthe balance sheet,BFLfocusedonimprovingitsreturnoncapital
employed (ROCE).ItwasrealizedthatBFLhad manylow-earningfinancial assets.BFL
decidedtoreduce itsexposure toall suchassets.Itfirstdivesteditsportfolio
investmentsandthendivestedthe holdingsingroupcompanies.Finally,itspunoff the
remainingfinancial assetsthatwere notcore to itsmanufacturingoperations(suchas
investmentsinWindmills).By2000-2001, BFL emergedasa fullyfocusedmanufacturing
companyhavingassetshighlyrelevanttoitscore manufacturingbusiness.

13. 4. Choicesrelated tomarketingandpositioning
a. EstablishingBFLasa brandin Europe throughacquisitionof DanaCorp.SpicerEurope
By 1995-1996, BFL had alreadyestablisheditself indomesticmarketasa reliable
providerof forgings.IthadalsosecuredcustomersinUS and thushad started
generatingrevenuesfromexportbusiness.However,withdownturninUStrucking
industryfollowedbyaslowdowninIndianmarketin1996, BFL was requiredtothinkof
alternate marketstostayafloat.BFL chose to enterintoEurope.For this,itstruck a
contact withDana Corp.’sSpicerEurope Limited.However,inreal sense,itwasan
acquisition.ItenabledBFLtoacquire entire orderbookof Dana Corp withoutbuyingits
assets.BFL organizedaverycreative deal structure bysegregatingthe acquisitionof
orderbook,landassetsand plantassetsbyaligningdifferentbuyerstobuydifferent
assets.Thisacquisitionnotonlygave BFLa presence inEurope butalsoopenedupthe
huge Oil andGas sectormarket.
b. FurtherforwardingBFLbrand byacquisitionof CDP
While DanaacquisitionallowedBFLtoenterEurope market,itstill didnothave any
productionfacilityoranyintellectual propertyinEurope.BFLwaswinningcontractsto
Europe customersbutwas still producingandfulfillingdemandsfromitsIndiafacilities.
AcquiringaGerman firm – Carl Dan Peddinghaus(CDP)–gave BFL immediateaccessto
assets,IPand laborforce of CDP.Through CDP,BFL couldprovide endtoendsolutions
to itsEurope customers. ThishelpedBFLestablishitsidentifyasafull service providerof
forgingsolutionsinEurope.
5. ChoicesrelatedtoOrganizationBuilding andHR
a. 3-layermanagementstructure tospeedupdesign/implementation
BFL had a multi-layerorganization.Thismade decisionmakingprocessveryslow.Ittook
agesto implementshop-floorfeedbackintomanufacturingprocess.BFLchose to
implementa3-layerstructure – employees,middlemanagement, andsenior
management.BFLalsorolledouta new performance managementsystemtoreward
performers.The new3-layerstructure enabledBFLtoimprove itscoststructure.
b. IntroducingVRS,educationof workers
Till 1995, BFL had90% of blue collarworkers.Blue collarworkerscame asvery
expensive employees.Bysuitablyinvestingintechnologyand rightprocesses,BFL
reduceddependence onmanual processes.ThisallowedBFLto launchVRSand allowa
dignifiedexittoexpensiveblue collaremployees.BFLalsoenteredintoanagreement
withBITS Pilani andallowedemployeestopursue parttime engineeringcourses.

14. The Value Loop
Automation
(PressLines)
Improved
Productivity
RightSizing
& Up skilling
Consistent
Quality
Data
Recording
PreventiveMaintenance &
ReducedO&Mexpenses
Timely
Delivery
Competitive
Price
WTP
Customer
Delight
Increased
Revenues
Consistent
GROWTH
Domestic&
International
Presence
Nearnessto
Market
Increased
Customer
Base
Flexible
Financing
options(Intl
/ Domestic)
Low cost of
capital /
Mitigate
Financial risk
Increased
Earnings
Divestin
Noncore
assets
Reduce Debt
Economies
of scope
Diversifyintoother
Businesssegments
Performance
Management
Choice
Consequence

15. Conclusion
From humble beginningstobeingareputedIndianMNCwithdynamicBusinessModel,BharatForge has
come to be regarded as a Market leader in Forging segment.
Bharat Forge reinvented its Business Model to expand its operations beyond India. Through
Performance basedmanagement,itwasable torightsize its organization structure. Through up skilling
it wasable to capture the changingbusinessenvironmentaswell asrecruityoung& qualifiedworkforce.
It helped Bharat Forge to deliver consistent quality by automating its processes thereby minimizing
rejections, increasing productivity which resulted in timely delivery, competitive pricing leading to
Increased revenues & Consistent Growth.
Bharat Forge alsofocusedondivestingin noncore assets,whichhelpedinincreasingliquidity&reducing
debts thereby increasing earnings.
Bharat Forge utilized its existing resource base to enter new market segments (Oil & Gas).
Its major source of income was Export market & hence they made a concerted effort to acquire
companiesneartotheircustomerbase resultingin increasedrevenues&customerconfidence inBharat
Forge.
Bharat Forge made a thoughtful decisiontoadoptInternational financing to reduce their cost of capital
& mitigate financial risk for their group operations.
Change inBusinessModel hasresultedin consistent growth for Bharat Forge. Bharat Forge was able to
create value byprovidingexcellentqualityatcompetitive prices,improvisedsupply chain management,
employing skilled workforce, cost creation & consistent growth in Earnings.
DynamicBusinessModel hashelpedBharatForge toreduce its exposure to changing market dynamics,
diversifyintoothermarketsegments,increasecashflow,reserves to utilize them to innovate, increase
its presence beyond India through collaborations & acquisitions. Above all Bharat Forge was able to
consistently grow its business through various choices it made resulting in positive consequences.