CaseStudy: The Car That Saved JLR
CaseStudy: The Car That Saved JLR
Theautomotive industry is one of the highly competitive sectors thatrequire the key players to apply the most viable theories and modelsto secure their going concern. Some of the key aspects of managementthat players in this industry should observe include leadership,changes taking place in the industry, and the management of humanresources. The adoption of viable business models addressing thethree aspects of management increases the competitive advantage ofthe company, enhancing its capacity to survive the market widechallenges. For example, research has shown that the automotiveindustry was hard hit by the global recession because of thewidespread application of outdated business models that reduces thecapacity of automotive companies to predict the pending risks(D’Arcy, 2009, p. 2). This paper focuses on the application ofrelevant theories in the three aspects of management (includingleadership, change, and strategic human resource management) by JLR,which enhanced its competitive advantage and the capacity to survivethe global financial crisis.
Leadership:The contingency theory of leadership
Aneffective leadership should have the capacity to adopt intelligentchange and set goals that keep their sight on issues that meritattention. This implies that apart from the use of social influenceto enlist the aid of others to help them in achieving certain goals,effective leaders should targets that give their followers reasons tofollow them. Although there are many leadership theories that helpleaders in attracting followers, while maintaining consistency withthe business environment, the contingency theory gives a clearpicture of the leadership of the leadership of Ford Motor Company,Tata Motors, and the new Tata’s acquisition named JLR. Thecontingency theory holds that optimal structural design adopted bythe organization is dependent on internal and external environmentalconditions (Klaas, 2005, p. 2). Leaders apply the contingency theoryshould, therefore, focus on effectiveness, viability, and efficiencyof the design in conditions of a changing business environment.
Fromthe case of JLR and Ford Motor companies, there are four instancesthat illustrate the application of the contingency theory to enhancethe going concern and success of a firm in an unstable businessenvironment. First, shifting from production of fuels guzzlingvehicles (including SUV and initial models of range rover) to fuelefficient cars (such as Evoque) was the most optimum decision thatJLR could make. This decision was dictated by external environmentbecause the increase in the price of petrol reduced demand for SUVs,which mainly occurred during the global financial crisis of 2008(Reed, 2012, p. 1). Evoque was a downsized model of the SUV that wasdesigned to new, foreign, and female buyers who were conscious aboutfuel efficiency. This implies that the decision to venture in fuelefficient cars was consistent with the main notion held by thecontingency theory that the appropriate leadership decision dependson the prevailing environmental conditions (Heiens, 2011, p. 20).
Secondly,the adoption of the two-tier compensation structure by JLR’sleadership was determined by the environmental conditions. TataMotors acquired JLR during the 2008 global economic recession, whichwas characterized by financial hardship in the financial andautomotive industries, especially for companies that focused onproduction of fuel guzzlers (Reed, 2012, p. 1). During this period,the leadership of JLR had two options (including retrenchment of sometechnical staff and restructuring the wage system) to salvage thenewly acquired venture from closing its operations and retain acompetitive workforce. In this case, adopting the two-tier wagesystem was the most viable decision because it would allow JLR retainexperienced employees, thus enhancing the stability of the companyand an opportunity to enhance its competitiveness. This was in linewith the general orienting proposition of the contingency theory,which asserts that the effectiveness of a leadership decision isbased on the capacity of leaders to balance and satisfy internalneeds, while helping the organization to adapt to environmentalconditions (Kucukuysal, 2011, p. 263). The retention of experiencedmembers of staff by negotiating the wage structure helped JLR inaddressing the key features required by the market, including qualityand fuel efficiency.
Third,the application of the contingent theory of leadership allowed JLR toexpand its workforce, which might have appeared to be inconsistentwith the earlier decision of reducing the starting salary of existingemployees. The unprotected increase in demand for the Evoque, whichaccounted for about 80 % of the company’s sales, forced JLR toincrease the number of employees by 1,000 and operate on 24 hours tomeet the market demand (Reed, 2012, p. 1). This implies that adynamic environment can force the organization to apply differentspecies of organization in order to fit in the dynamic businessenvironment (Peretomode, 2012, p. 14).
Change:Kotter’s 8-step change framework
Theautomotive industry has already reached the stage of transformationalchange where the main initiatives for change include the reduction inproduction cost, an increase in fuel efficacy, and enhanced laxity.Transformational change in this context refers to a significant shiftin the organization’s culture, mission, vision, and goals (Auguste,2013, p. 3). There are many theories attempting to explain howorganizational change occurs. However, the Kotter’s 8-steps ofchange gives a logical explanation of factors that have helped JLRincrease its competitive advantage and recover from the globalrecession of 2008 at a faster rate compared to other players (such asFord Motor Company) in the industry. The Kotter 8-steps framework isa change model that was developed by a change management expert namedJohn Kotter in 1995 and outlines 8 steps that lead to a successfulorganizational change (Appelbaum, 2012, p. 722).
Thefirst step of the Kotter’s 8-step framework is the creation ofurgency, which is accomplished by opening a convincing and opendialogue about the marketplace issues affect the company (Mind Tools,2014, p. 1). In the case of JLR, the sense of urgency was created byinviting the labor unions to negotiate the need for the adoption of atwo-tier wage scheme in order to save the company from the effects offinancial crisis.
Secondly,the company should form a powerful coalition by convincing itsstakeholders that change is inevitable (Appelbaum, 2012, p. 767).This ensures that the organization gets emotional commitment from itsstakeholders during the change. JLR managed to secure an emotionalcommitment from its stakeholders by convincing them that a two-tierwage structure would help the company avoid the closure of someplants and retrenchment of a large number of employees (Reed, 2012,p. 1). This implies that the decision was a trade-off between losingthe job or retain it a lower wage, while expecting a better pay inthe future.
Third,an organization that is undertaking change should develop a visionthat will drive the change (Mind Tools, 2014, p. 1). For example,JLR’s vision was to address the changing whims of its consumers bymanufacturing quality vehicles that consume less fuel, but retainsthe laxity desired by the target consumers (Reed, 2012, p. 1).Clarity of the vision helped the stakeholders find the value of thechange.
Fourth,a vision for change should be properly communicated to people who areexpected to implement it. For example, the vision to manufacture carsthat address emerging needs of the youths, women, and consumers inforeign markets communicated to employees and this resulted in aradical increase in Evoque sales (Reed, 2012, p. 1).
Fifth,the company should remove obstacles that might prevent theimplementation of the vision for change. This involves the reductionof resistance by part of employees. For example Reed (2012, p. 1)reported a statement by Cooper an employee at JLR who said “I willbe honest with you, I did not want them (new employees) coming on ata lower wage, but we accepted it to give the likes of Patrick (a newemployee) a chance” (Klaas, 2005, p. 3). This implies that JLR hadsuccessfully managed to overcome employees’ resistance to change.
Sixth,the company should create short-term wins to give the stakeholders ataste of success. This was accomplished at JLR by investing in newengines, cars, and variants for a period of five years (Reed, 2012,p. 1).
Seventh,the company should keep on building on change in order to establish along-term competitiveness. For example, JLR indicates its plan tobuild on change by investing heavily in infrastructure, humanresource, and building manufacturing plants in other countries, suchas China (Reed, 2012, p. 1).
Lastly,anchoring change in the organizational culture helps the firm inensuring change becomes a process of helping the company respond tothe market demand. One way of achieving this is by replacing theleaders of change with time, such as Tata’s handing over theleadership of JLR to Cyrus Mistry in order to enhance the process ofchange and company’s competitiveness (Reed, 2012, p. 1).
Strategichuman resource management
Strategichuman resource management is a significant field of management thathelps companies in addressing the needs of their employees whilepromoting their goals. The field of strategic human resourcemanagement is wide, but there are only about four aspects of humanresource management (including hiring, benefits, pay, andadministration) that JLR has managed to address. Strategic humanresource management is a proactive approach that requires managers tothink ahead and planning on the most appropriate ways to meet theneeds of employees in order to ensure that employees meet the needsof the organization. The strategic human resource management at JLRcan be analyzed on the basis of the best-fit human resourcemanagement approach. The best-fit approach holds that human resourcemanagement strategies are more effective if they are properly linkedto the surrounding environment or context of the business (Kew, 2010,p. 4). This implies that organizational performance is maximized whenhuman resource strategies and policies are constant with the businessstrategies of the firm. This is based on the assumption that humanresource policy strategies and policies will be implemented likeprojects and result in similar consequences on employees working inthe same firm. The best have two major elements, including theexternal fit and internal fit.
JLRhas applied the concept of the best-fit in its reward structure withthe main objective of increasing the organizational efficiency inboth short-run and in the long-run. Although JLR had three (includingoverall low cost provider, broad differentiation, and focus or niche)options to link its human resources policies with organizationstrategies, focus is the only competitive strategies that fitted wellwith the organizational strategy. There are three factors thatconfirm the successful link between the reward system and theorganization strategy of JLR. First, JLR has created jobs thatrequire close interaction as well as coordination among individualsand groups. For example, the scenario in which the older employeeswork closely with the newly recruited ones shows that theorganization has established an interactive process that willfacilitate the flow of skills and knowledge in the long-run. This isexpected to sustain the competitive advantage of the firm in thelong-run (Usmani, 2013, p. 1). Secondly, JLR has establishedperformance appraisal systems that reflect long-term as opposed toshort-term achievements. For example, the management of JLRformulated a compensation and job rank policy that allowed newemployees to work as temporary workers and get permanent employmentafter one year of service. This suggests that JLR have linked itscompetitive advantage strategy with the human resource policies. Thisis because the act of giving new employees a promise of a better payand promotion suggests that the company expects these employees tocontinue working in it for a foreseeable future.
AlthoughJLR management has managed to establish an external fit between theorganizational strategy and human resource strategy, there is onechallenge with the internal fit. The company encourages teamworkbetween the newly employed workers and older employees who areexperienced, but gives different compensation to the two categoriesof employees. This is a suggestion of policies that work in differentdirections, indicating a lack of appropriate internal fit.
Theapplication of relevant theories and business models is inevitablefor companies that intend to increase their competitive advantage andsurvive the challenges taking place in both internal and externalenvironments. This is confirmed by performance differences betweenthe automotive companies that adopted the relevant business theoriesand models to address the market challenges associated with theglobal recession of 2008. For example, it is evident that JLR appliedthe key assumptions of the contingent theory to establish aleadership that had the capacity to address market challenges asdictated by the internal and external environmental conditions. Inaddition, the application of Kotter’s 8-steps framework allowed JLRto adapt to the market changes by changing its operations andaligning with the market conditions. Finally, the use of expectancytheory in strategic human resource management enabled JLR to retainits experienced members of staff and attract new employees in spitethe adoption of a two-tier wage scheme.
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