IIMB 301
ABHOY K OJHA
BOSCH GROUP IN INDIA:
TRANSITION TO A TRANSNATIONAL ORGANIZATION
V K Vishwanathan had just finished a meeting with the top management of all the entities of the Bosch Group in
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being the Managing Director of Bosch Ltd., the flagship company of the group, he was also Chairman of the Board
of several of the Bosch Group subsidiaries in India. He had chaired the just concluded meeting as Country Head of
the Bosch Group in India to review the progress of the verticalization process. Vishwanathan knew that
verticalization was part of a global initiative that could not be stopped only in India. It was a structural change
driven by the global headquarters to increase the role of product divisions relative to geographic divisions in a global
matrix structure. Essentially, Bosch was making a transition from a global matrix structure that had given primacy to
national and/or geographic divisions to a transnational structure in which the balance of power and authority would
favor the global product divisions. As the changes suggested that relative to the past there would be a greater role for
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The top management of the Bosch Group was very keen that the new structures were fully implemented and wellXQGHUVWRRGLQ,QGLDVRWKDWWKH\FRXOGVXSSRUWWKHFRPSDQ\¶VVWUDWHJ\LQ,QGLDDQGDOVROLQNWKH,QGLDQRSHUDWLRQV
with operations in other countries as part of its global product strategy. For the Indian market, the Indian operations
would be able to tap technologies and knowhow available in other parts of the Bosch group to provide the
competitive edge relative to other new entrants into the market. For the global market, any part of Bosch could tap
into the cost-effective products in India to meet the demand in their context. At the end of the change process, Bosch
was to truly become a transnational organization with the ability to source products from units that were most
productive and offer them in markets that were most profitable.
Vishwanathan knew that the logic of the change was driven by challenges in markets that were much larger than in
India, mainly Europe and the United States, and the Indian operations were too small, despite potential for growth,
to have a major impact on the global changes. So, although there was no apparent performance pressure to change
strategies or structures based on the vision of the Bosch Group in India as a geographic division, it had to go along
with the changes to fit in with the new transnational strategy and structure adopted by Bosch for its global
operations. In the meeting, he had obtained conflicting feedback on the verticalization initiative. Some senior
managers reported significant positive benefits for their units as a consequence of the improved alignment of activity
as a consequence of verticalization. The head of one of the divisions highlighted how he had managed to tap
technology from a Bosch subsidiary in another country without a fuss, something that he had failed to do prior to
verticalization. On the other hand, he heard many vociferous complaints about how things had worsened since the
recent changes were implemented as it had made simple tasks very complicated. For example, some decisions that
could be made by a simple face-to-face meeting or a phone call took more than a month of complicated approval
processes. He sensed that even as there were some positive changes, confusion and conflicts had increased. He
needed to ensure that the future rollout of the change initiative was better. He recalled that some of what he heard in
the meeting was very similar to what he used to hear in his earlier stint at Hindustan Unilever Ltd. in the mid-1990s
(then Hindustan Lever Ltd.), which had also undergone similar changes during the period. He knew from experience
that many of the benefits could be amplified and the disbenefits could be mitigated if those who had gone through
the changes could share the positive and negative experiences with others so that the best practices could be
replicated in other units and the harmful practices could be avoided.
Abhoy K. Ojha prepared this case for class discussion. This case is not intended to serve as an endorsement, source of primary data, or to show
effective or inefficient handling of decision or business processes. The author thanks the interviewees and the members of the HR department
who provided all the assistance in acquiring the required information. In order to maintain confidentiality and protect the identity of individuals
who shared their views, the case does not mention their names. Also, the quotes used in the case have been modified to disguise the identity of
the person who shared the view expressed.
Copyright © 2010 by Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted in any form or by
any means ± electronic, mechanical, photocopying, recording, or otherwise (including internet) ± without the permission of Indian Institute of
Management Bangalore.
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Bosch Group in India: Transition to a Transnational Organization
Page 2 of 18
THE BOSCH GROUP
Robert Bosch GmbH was founded in Stuttgart, the city in which the company had its headquarters. Robert Bosch
started the company as the "Workshop for Precision Mechanics and Electrical Engineering" on November 15, 1886
using the 10,000 German marks he inherited from his father. The initial work involved constructing and installing
electrical devices of all kinds, including telephone systems and remote electrical water-level indicators. The business
did not do well in the early days. When his initial capital got exhausted, he had to take a loan from a bank, for which
his relatives stood surety. He had to take more loans and plough back his small earnings to sustain the business.
However, by 1895, after nine difficult years, he repaid all the debts and the business improved steadily.
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working in Germany, Europe, and the United States. In the United States, he worked for a company owned by
Thomas Edison. This exposure to business on an international scale shaped the future directions for Bosch. Two
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Bosch sales office in the United States was established. And, by 1922, Bosch sales offices had been started in South
Africa, South America, and Australia.1 The Bosch Group has been a leading global supplier of technology and
services with concentration in areas of automotive technology, industrial technology and consumer goods and
building technology. In 2011, the Bosch Group had revenues of 51.5 billion euros and a global workforce of
303,000. In 2010, the corresponding numbers were 47.3 billion and 284,000, respectively. Exhibit 1 shows the
performance of the organization in the last few years.
Each business sector was addressed by several divisions, some fully owned by Bosch and some jointly with other
organizations. Exhibit 2 shows the distribution of divisions in the business sectors. The dominant business sector
was automotive technology contributing about 60% of the revenues, followed by consumer goods and building
technology contributing about 25% and industrial technology contributing the remaining. Each of the product
divisions consisted of smaller business units and regional subsidiaries reflecting the history of the organization and
changes in contexts as it grew into a global organization. Robert Bosch GmbH was the main organization of the
Bosch Group. In 2010, the group had more than 300 subsidiaries and regional companies in over 60 countries.
Bosch manufactured its products at 292 locations, of which over 200 were outside Germany. Exhibit 3 shows the
distribution of Bosch manufacturing locations across the globe. If its sales and service partners were included, then
Bosch was represented in roughly 150 countries.
Bosch was truly a global company with around 75% of its revenues generated outside Germany. In 2008, the biggest
share of sales was derived from Europe (including Germany), accounting for 65%, followed by North and South
America with 18%, and Asia-Pacific with 17%.2 In 2010, the share of sales from Europe was 59%, followed by
Asia-Pacific with 23%, and Americas with 18% reflecting the growth in new markets. Its workforce was also truly
global. Exhibit 4 shows the workforce distribution across the regions. In 2008, the largest workforce, about 41%,
was employed in Germany, followed by Europe (without Germany) with 27%, the Asia-Pacific with 18% and the
Americas with about 14%. After a dip in employment in 2009, due to the global downturn, Bosch had grown in
every region based on actual employment. However, maintaining its thrust to become more global, the proportion of
employees added in the Asia-Pacific had increased to making it employ 23.5% of the associates in 2011.
Bosch also enabled an environment for innovation. Bosch spent more than 3.8 billion euros for research and
development and applied for some 3,800 patents worldwide each year. About 34,000 employees worked on research
and development with about 16,000 of them working outside Germany. Even the research centers in Germany drew
on talent from across the world. For example, in its Engineering Center in Abstatt, Germany, 2,000 associates from
30 different countries worked together. They sparked innovation from a diverse global mix of creativity and
expertise. The success of these approaches could be judged by the number of patents Bosch attained each year. It
had 2,800 patents in 2006 making it the best in class not only in Germany and Europe, but also in the United States.
In 2011, Bosch spent more than 4 billion euros for research and development and applied for over 4,100 patents
worldwide. $V3HWHU-0DUNV0HPEHURIWKH%RDUGRI0DQDJHPHQW5REHUW%RVFK*PE+SXWLW³$GD\ZLWKRXW
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1
2
Speech by Peter Marks
Bosch Group at a glance
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Bosch Group in India: Transition to a Transnational Organization
Page 3 of 18
In a speech at the Automotive News World Congress on January 17, 2007, Marks proudly stated:
In 1917, Forbes Magazine first created its list of the top 100 companies. Only 13 of those
companies have survived independently and to the present day. Bosch has survived. And remained
independent. And also prospered and grown.
ORGANIZATIONAL STRUCTURE AT BOSCH
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through phases. The structure at each phase reflected the choices of the management to cope with the challenges in
the context. The history of Bosch as a company could be broken down into a total of six phases. 3
Phase 1
In the first phase, from 1886 to around 1900, Bosch was a small craft business in Stuttgart that survived at
subsistence level for the first few years until the development of magneto ignition transformed it into a fast-growing
automotive supplier. During these years, there was no requirement of a formal structure. Bosch was able to interact
with all employees on a personal basis, so formal systems to differentiate and integrate were unnecessary. However,
by 1900, the workforce had risen to nearly 40, and the activities were reaching levels that tested the limits of a
personalized style of management.
Phase 2
The second phase of its history was from around 1900 to 1925. In 1901, the company's first factory in Stuttgart with
a workforce of 45 was established. The acquisition of a new building for the factory, which was state-of-the-art for
its time, marked the company's transition from craft to industrial production. The company adopted a functional
structure. The company focused on the automotive industry, and in order to obtain the economies of scale, the
company differentiated its activities horizontally and vertically. Between 1901 and 1907 alone, the number of
associates working at Bosch rose from 45 to almost 1,000. As part of the formalization of the organization, the
organization adopted an eight-hour day and the two-shift system for all his employees on July 16, 1906. A second
German factory was opened in nearby Feuerbach in 1910.
At the same time, the company began to internationalize, with the founding of the first sales offices and
manufacturing sites outside Germany. Initially, the focus was on other countries in Europe, including the United
Kingdom. It opened the first sales office in the United States in 1906 and the first factory there in 1912. By 1913, the
company had sales offices throughout the world and generated some 88% of its sales outside Germany. The
company experienced enormous growth during this period owing to the international success of magneto ignition.
By 1915, a total of two million magneto ignition systems had been manufactured indicating the productivity of the
QHZRUJDQL]DWLRQVWUXFWXUH7KH³%RVFKDXWRPRWLYHOLJKWLQJV\VWHP´DQGWKHHOHFWULFVtarter were other products that
were successful in the market.4
The dominant characteristic of the organizational structure remained functional. The different activities within
Germany and Europe were managed along functional lines. The international businesses were conducted largely
through international sales divisions. In instances where manufacturing facilities were established in other markets,
they were seen as extensions of the manufacturing facilities in Germany.
Phase 3
The third phase of the company's history was from around 1925 to 1960. This period began with a crisis owing to
the after affects of World War I that hit the automotive industry. Between 1926 and 1927, over 25% employees lost
3
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stage.
4
Bosch history at a glance
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Bosch Group in India: Transition to a Transnational Organization
Page 4 of 18
their jobs. The organization continued with the functional structure with production organized around an assemblyline system launched in 1925 that enhanced productivity.
However, the crisis also prompted the company to start the process of diversification. Bosch began to concentrate on
other product segments in order to reduce its unilateral dependence on the automotive industry. New business units
such as Power Tools, Junkers Gasgeräte (manufacturers of natural gas-fired water heaters), Blaupunkt (radios for the
cars and households), Fernseh GmbH (television studio equipment), Kinobauer (cinema projectors) and household
appliances were started. In only a few years, the company was successfully transformed from a small automotive
supplier into a modern, multinational electrical engineering group.5
As in the second phase, the dominant characteristic of the organization remained a functional structure. Although the
organization diversified into several unrelated products, the management system still emphasized functional
management. However, because of geographic distance and the resulting difficulties in travel and communication
for close management, the large international operations acquired some autonomy. Some of this was also influenced
by World War II. The non-European operations acquired greater autonomy as the headquarters in Germany was
unable to function normally. This was quite consistent with the experience of other European organizations that also
expanded during that period. Also the re-organization of the company dictated by postwar conditions on some
German companies,6 made it more difficult for the headquarters to exercise authority over its international
operations. In short, the seeds of a global geographic organization structure were sown during this phase owing to
circumstances beyond the control of the management.
Phase 4
In the fourth phase of its history from around 1960 to 1990, Bosch began introducing far-reaching reforms to its
corporate structure and constitution. Restructuring the company into divisions actually began in 1959. Although
diversification in the earlier phases was within the constraints of a functional structure, the diversification in this
phase was based on the adoption of the product divisions. The first was the Power Tools division, founded in 1960.
A second wave of diversification also began in 1964. This included the Packaging Technology division, formed as a
result of a series of acquisitions. The addition of pneumatics and hydraulics businesses later formed the Automation
Technology division. In a third wave of diversification, the company acquired Telenorma in 1982 to enter the
telecommunications market.
However, the product divisions focused largely on the business in Europe. The globalization of Bosch was largely
based on the establishment of geographic divisions. This was the continuation of the effect of World War II and also
the fast growth experienced in other geographies, particularly North America.
Phase 5
The fifth phase in the history of Bosch spans the period from 1990 to about 2007. It includes the opening up of the
eastern European markets, the rapid growth of Asian economies, and global networking of development, production
and sales. At the same time, however, efforts were intensified to tap foreign markets opening up in Asia and Eastern
Europe. The share of sales generated outside Germany, still 49% in 1993, increased to 72% by 2000. Alongside the
conclusion of key joint ventures in China and Korea, Bosch succeeded in pooling its activities in Japan after the
acquisition of a majority share in Zexel Corporation. In India too, where Bosch has been represented since 1919 and
Bosch products have been manufactured under the brand name MICO since 1951, steps were introduced in 1997 to
restructure the company's activities in this growth market with the founding of a regional company Robert Bosch
India Ltd.
In this phase, the global expansion required a matrix structure. Many product divisions had their manufacturing
facilities in different geographies. The product division was responsible for several aspects of the running of
business units affiliated to them, but primacy was still given to geographic structure, that is, the country or regional
organization had the final authority to make business decisions in their context.
5
Bosch History at a glance
The Bosch Group was charged with assisting German war effort and was one of the many German firms on which restrictions were applied .
6
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Bosch Group in India: Transition to a Transnational Organization
Page 5 of 18
Phase 6
This phase began in 2007. In this phase, the management wanted to transform Bosch into a transnational
organization. It wanted to blur the importance of national markets and look at the global market as one market. As
stated by Marks in his Dearborn speech in 2007, the focus on global product divisions was necessitated by a
simultaneous focus on innovation and cost leadership, both driven through global production divisions:
The common wisdom holds that there are two basic ways to succeed. That we must choose
between them. You can either be the innovation leader, or the cost leader. But, our response has
been to pursue a two-pronged strategy: innovation leadership, and cost leadership. Innovation has
been ± is ± and will continue to be ± our hallmark at Bosch. In 2005, we spent around 2.5 billion
euro ± or 3.1 billion dollars ± IRU5HVHDUFKDQG'HYHORSPHQW«%XWZHDUHZHOODZDUHWKDWWKH
technical advantages of cutting-edge innovations melt away ± much faster than in the past. That
this is why cost leadership must also be a part of the strategy equation for Bosch. And so, our
challenge is to manage the balance between innovation leadership and cost leadership.
The document outlining the new structure clearly states that in addition to a focus on product divisions, there is need
to balance two more perspectives, namely customer and regional, in designing the new organization.
We are convinced that the profit and growth targets we aim for can only be achieved if product,
customer, and regional views are given balanced consideration.
The global matrix structure in 2010 reflected the choices of the management to transform Bosch into a transnational
organization. Exhibit 5 shows the new matrix structure at Bosch. It also shows the reporting and coordination
responsibilities which indicate the primacy of product divisions.
At the heart of the new organization structure were four types of operating units around which activities would be
grouped (i) Global divisions (ii) Corporate sectors and departments (iii) Regional organizations and (iv)Crossdivisional sales and marketing organizations. These units reflect the basis on which the new organization was
differentiated.
Global divisions A global division was essentially a global product division. The top management of a global
division was fully accountable for the global performance of its operational businesses. The global divisions may be
sub-divided into business units for product lines that also had global responsibilities. The heads of these business
units also reported to the executive management of the global product division. Each business unit in turn may be
represented at a national level by regional business units.
Corporate departments When an organization gets organized around product divisions, often functional
expertise gets neglected unless it is explicitly recognized as a responsibility. Corporate departments are units that
were globally responsible for the enhancement of functional expertise within the bounds of their specialist area.
Corporate departments could set up centers of competencies in the regions. Centers of competencies provided
support in specialist issues, especially those concerning more than one country, for the global divisions, regional
organizations or global sales, and marketing organizations.
Regional organization When an organization gets organized around product divisions, the organization thinks
globally and often localization issues of a region get neglected unless they are explicitly recognized as
responsibilities. A regional organization was accountable for cross-divisional tasks and projects in the region. It
represented Bosch in the region. It was responsible for the governance function, for human resource policy in the
region, and for shared services. It had responsibility for the associates in its legal entity. The regional organization
supported the global product divisions in their planning and controlling processes by contributing the regional view.
The regional organization consulted the global product divisions and global sales and marketing organization about
major success factors and strategies in the region.
Global sales and marketing organization Again, when an organization gets organized around product
divisions, the organization thinks globally and often the attention provided to key customers which is possible in a
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Bosch Group in India: Transition to a Transnational Organization
Page 6 of 18
geographic structure gets neglected unless it is explicitly recognized as a responsibility. A global sales and
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customers. It was responsible for cross-divisional, customer-specific tasks and for aligning customer and product
strategy in the global product divisions. Its tasks included contributing the customer view, formulating a crossdivisional, global customer strategy together with the regional organization, involvement in agreements/contracts
with customers, customer-specific services, and marketing activities with key customers.
In order to integrate the operating units, the organization segregated the reporting and coordination processes into (i)
target responsibility, (ii) disciplinary responsibility, and (iii) functional coordination.
Target responsibility refers to processes related to business decisions. It involved setting targets for an operating
unit, be it product levels, quality levels or sales levels, to arrive at an agreement on the objectives to be achieved for
a specified period of time, a quarter or a year. It further involved monitoring and subsequent evaluation to see if the
agreed targets were met and what could be done to improve performance. It also included authority over decision
that could affect the achievement of the business objectives, including decisions related to staffing, the evaluation of
staff and training needs and also remuneration. During conflict with other decision parameters, the manager
responsible for targets would have the final authority to resolve an issue.
Disciplinary responsibility refers to the process related to human resources. It involved decisions related to staffing
patterns, the welfare of employees, setting remuneration levels, conducting employee evaluation and identifying
their development needs and addressing them to educational and training programs.
Functional coordination refers to processes related to specialized functions. Function coordination involved
providing directives to those with target responsibility on functional competencies and processes to maintain and
enhance functional expertise, which might include the sharing of best practices. It also involved participation in
decisions related to staffing patterns, and the development needs of the staff.
BOSCH GROUP IN INDIA
In India, the Bosch Group had about 25,000 employees, and in the business year 2011 achieved total consolidated
revenue of over Rs. 113,000 million (1$ = Rs. 55, in June 2012). Bosch was a leading supplier of technology and
services, and had a strong presence in the country at numerous locations in diverse industry segments ± both
automotive and non-automotive. Bosch had been present in India for more than 80 years with a representative office
in Calcutta since 1922.7 Bosch started operating in India in 1951, and set up its manufacturing operations in 1953,
and had grown over the years to 11 manufacturing sites and four development centers.
Similar to the global organization, the business segments in India could be segregated into three segments (i)
automotive technology, (ii) industrial technology, and (iii) consumer goods and building technology. In addition, the
Indian operations had a fourth business segment called engineering and IT services. Exhibit 6 indicates the business
sectors and divisions in India. Automotive technology was represented by the following business units: diesel
systems, gasoline systems, chassis brakes, automotive accessories, car multimedia, starters and generators, energy
and body systems, electrical drives, spark plugs, and glow plugs. Industrial technology was represented in the
following business units: automation technology, packaging machines, and special purpose machines. Consumer
goods and building technology had the power tools and security systems business units. The Engineering and
Information Technology division of Bosch in India was the largest development center of Bosch outside Germany.
The Bosch Group operated the various business divisions through the following legal entities.
x Bosch Ltd.
x Bosch Chassis Systems India Ltd.
x Bosch Rexroth India Ltd.
x Robert Bosch Engineering and Business Solutions Ltd.
x Bosch Automotive Electronics India Private Ltd.
x Bosch Electrical Drives India Private Ltd.
7
Bosch Limited Profile 2011
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Bosch Group in India: Transition to a Transnational Organization
x
Page 7 of 18
MHB Filter India Private Ltd.
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largest auto component manufacturer and also one of the largest Indo-German companies in India. The company
employed 11,700 associates and generated revenues of Rs. 80179 million in 2011, a growth of 19.7% over 2010.
The Bosch Group held close to 70% stake in Bosch Ltd. The company was headquartered in Bangalore with
manufacturing facilities at Bangalore, Naganathapura (near Bangalore), Nashik, Jaipur, and Goa. Bosch Ltd.
manufactured and traded in all the three major business sectors of Bosch.
Robert Bosch Chassis Systems India Ltd. (RBIC) was a subsidiary of the Bosch Group in India established in 1982.
Its corporate office was located at Pune, and the manufacturing plants at Chakan (near Pune), Jalgaon, and Manesar
(near Delhi). To cater to the increasing demand, a fourth facility was started at Sitarganj in Uttarkhand. RBIC
business areas included actuation, foundation, and modulation of the braking system. The company manufactured
world-class hydraulic brake systems to comply with the stringent requirements of the leading original equipment
manufacturers in the automobile industry. It also manufactured brakes for two-wheelers, three-wheelers, passenger
cars, utility vehicles, light commercial vehicles, and agriculture tractors.
Bosch Rexroth India Ltd. was the leader in its field and a major contributor to leaders of different industry segments.
It focused on industrial hydraulics, electrical drives and controls, linear motion and assembly technologies,
pneumatics, and mobile hydraulics. It provided off-the-shelf and customized solutions backed up by a global service
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applications, as well as didactic hardware and teachware.
Robert Bosch Engineering and Business Solutions Ltd. (RBEI), was a 100%-owned subsidiary of Robert Bosch
*PE+RQHRIWKHZRUOG¶VOHDGLQJJOREDOVXSSOLHURIWHFKQRORJ\DQGVHUYLFHVRIIHULQJHQG-to-end engineering, IT,
and business solutions. With over 10,000 associates in 2011, it was the largest software development center of
Bosch, outside Germany. It provided solutions for businesses primarily in engineering, information technology, and
EXVLQHVVVHUYLFHVWR%RVFK¶VJOREDORSHUDWLRQV5%(,LVD-owned subsidiary of Robert Bosch GmbH, one of
WKH ZRUOG¶V OHDGLQJ JOREDO VXSSOLers of technology and services, offering end-to-end engineering, IT,
and business solutions.
In addition, the Bosch group was represented through three joint ventures: (i) Bosch Automotive Electronics India
Private Ltd., (ii) Bosch Electrical Drives India Private Ltd., and (iii) MHB Filter India Private Ltd.
IMPLICATIONS OF VERTICALIZATION FOR BOSCH GROUP IN INDIA
The changes in the global organization have had implications for the Indian operations. Before the changes in 2010
were initiated, the Indian operations were managed similar to a geographic division with linkages to the various
business divisions, which were product-based divisions largely focused on the European market. As an executive in
the Indian operations explained the functioning prior to the changes:
The Directors of Bosch Limited in India had overall responsibility for running the business in
India. They identified the areas for growth and then formulated the strategies to pursue them. They
coordinated with product groups to pursue the national strategies.
He also indicated that there were no local pressures for change as the performance in India was good, but as the
changes were being made at a global level, the Indian operations were also affected:
In India, the Bosch businesses were doing quite well and there was no pressure for change in the
organization in India. The Diesel Systems division which accounted for about 70% of the business
had good visibility from its global group and obtained adequate support. However, since
verticalization was being implemented in all geographies, it was implemented in India also.
According to him, the genesis of the verticalization process was in the poor performance of the North American
operations:
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Bosch Group in India: Transition to a Transnational Organization
Page 8 of 18
The history of verticalization goes to the North American operations. The sales and profitability in
the US was not good. The directors in the US attributed the lack of performance to the lack of
support from the business divisions, which were headquartered in Europe. The business divisions
ran the businesses in Europe and were supposed to provide support to the country units when
required. It appeared that they focused on the European business, for which they were directly
responsible, and the priorities of the country units were often neglecteG«$Q DQDO\VLV RI WKH
situation led to the decision to make Global Business Units responsible for its business across the
world.
Another executive explained the philosophy that was behind the recent changes:
The philosophy underlying verticalization is to have a product strategy for the world. It has
resulted in an international production network with all plants within a family of products being
connected to each other. It allows best practices to be shared, ensures consistency in
manufacturing processes, facilitates balancing of production capacities to deal with surges in some
regions, and maintains quality standards across the world.
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when he returned to India after several roles within the Bosch Group in Europe and North America. An executive
described his role as crucial in ensuring that the Indian operations did not get bulldozed by the global product
divisions to the neglect of the local needs of the Indian market and the Indian operations:
There are apprehensions that the voice of the region may get lost as a result of verticalization.
Regions may become weak. To address this, there is a role for the Geographic Region President or
Country Head. The country head is the head of all entities in India and is the chairperson of their
boards. He has a review of all the businesses in India and then gives recommendations directly to
the corporate office. This provides an opportunity to escalate issues that managers might have
reported to their Product Groups but were neglected.
However, as in any change of this global scale, there will be always some things that work well and others that do
not. In most instances, managers were exposed to their immediate context and viewed the changes as favorable or
unfavorable based on their own experiences. They were either not normally exposed to the larger picture or work
pressures and responsibilities for their own performance context prevented them from appreciating the global
benefits if things were not working out for them. It is important that certain interventions be made such that
gradually, the broad changes were accepted and the processes refined to ensure overall success.
Viswanathan requested one of the assistants in his office to prepare a brief summary of what was said at the meeting
and organize it along the lines of opportunities to be exploited and challenges to be addressed. He glanced through
the brief that was provided to him.
OPPORTUNITIES
The changes have offered several opportunities to the Indian units to perform better.
Greater Visibility for Smaller Divisions
One set of beneficiaries of the new organization were the smaller divisions that earlier felt neglected, but now felt
that they are getting the attention they always deserved. As one senior executive indicated:
In India, before verticalization, the Diesel Division was very important and the other divisions
were often neglected. After verticalization, the Diesel Division continues to be the dominant
division and has the attention of top managers in India and global headquarters, but the smaller
divisions have gained visibility as they report directly to the global business heads.
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Bosch Group in India: Transition to a Transnational Organization
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This view was corroborated by the head of one of the smaller divisions:
Earlier some of the smaller division felt neglected. They did not have similar customers or
employees with the Diesel Division, but were constrained by decision-making processes that
primarily suited the Diesel Division. Now, the smaller divisions get the attention from their bosses
in the Global Business Group.
New Career Opportunities
The new organizational structure had created better career opportunities for those in India, whether they worked for
a small division or a large division. Two senior executives from different divisions used almost the same words to
explain this:
Previously, Bosch employees in India had limited opportunities for growth as their careers were
limited to the country. Now several employees have got opportunities to pursue careers in the
global divisions and obtain greater impact and visibility in Bosch¶VJOREDORSHUDWLRQV
New Opportunities to Contribute Globally
However, a very critical prospect for the Indian operations as a result of the new changes was the opportunity to
participate more fully in the global operations in terms of technology development. When the focus was on Indian
operations under the geographic structure, the interaction with the Product division was limited to taking
technologies and manufacturing processes from them and further developing them in the Indian context. Because
of the direct linkages to global product headquarters, there was an opportunity for Indian technologies to get
visibility in the global markets:
Verticalization also allows technologies developed in India, which would have remained local, to
flow back to global divisions and become part of global offerings. In one case, the Diesel Division
in India developed a technology that would not have been designed for the European markets, but
was ideal for the Indian market in which mileage and fuel efficiency are higher priority than noise
levels. Now, this technology has been introduced in other regions with the support of the Global
Product Group.
Development of a Global Perspective
As a consequence of the opportunities mentioned above, there was an opportunity for the India-based associates to
develop a global perspective. Before the verticalization process was initiated, most junior and middle level
associates paid attention to very local issues. There was rarely an opportunity for them to understand the dynamics
of their industry in terms of global trends. Further, there was little opportunity for them to understand the wider
capabilities of Bosch globally to be able to take the initiative to source products and/or technologies from other
geographies for the Indian markets. The process of integration after verticalization had allowed associates to take the
initiative to examine how Indian operations could contribute to Bosch markets globally, and how Bosch products
and offerings in other markets, could provide new opportunities in India.
CHALLENGES
It was somewhat early in the process of implementing the large-scale changes, but at that moment the challenges
seemed to be many.
Fragmentation of the Organization
One of the biggest challenges has been to continue to function as one organization, and the verticalization process
VHHPVWRKDYHFUHDWHGVHYHUDORUJDQL]DWLRQVXQGHURQHURRI$VHQLRUH[HFXWLYHGHVFULEHGWKH³IUDJPHQWDWLRQ´RIWKH
organization:
Previously, Bosch Group in India was one. There was a Country Head and all issues pertaining to
India were resolved efficiently. Now, we are multiple organizations within a single organization.
There is multiple reporting within India and outside, and this leads to conflicts and, often, long
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Bosch Group in India: Transition to a Transnational Organization
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delays in resolving simple issues. The importance of unity of command is no longer there. For
example, earlier if a member of the staff had to be temporarily moved from one division to another
due to some exigencies, it was a simple decision. Now that each division in India is run as a
separate profit centre, managers are interested in their own goals and are reluctant to release staff,
DQG HYHQ ZKHQ WKH\ DJUHH WKH\ ZDQW WKH ³ERUURZLQJ GLYLVLRQ´ WR EHDU WKH VDODU\ DQG RWKHU
personnel charges.
He indicated that the verticalization process has also had other implications in terms of identity of the organization
and identification of the employees with the organization which puts pressure on compensation expectations and
human resource practices:
The bonds between divisions in India have weakened after verticalization. For example, people in
the Security Systems Division do not see themselves as part of the automobile industry, and
benchmark themselves against counterparts in Sony or Philips and not against those in other
divisions of Bosch.
Before verticalization, the financial statements were consolidated. Only the top managers were aware of the
activities that were currently making profits and which were not. After verticalization, each division was aware of its
prRILWDELOLW\ DQG WKH PRUH SURILWDEOH GLYLVLRQV ZHUH UHOXFWDQW WR ³VXEVLGL]H´ WKH OHVV SURILWDEOH GLYLVLRQV $ VHQLRU
executive from a highly profitable division stated:
:KHQWKHRUJDQL]DWLRQZDVRQHRQHGLYLVLRQ¶VKLJKPDUJLQVDOORZHGWKHRUJDQL]DWLRQWRcover the
cost of other divisions that were not doing that well. Since, only the top management used to know
the profits, this was easy to maintain. Now, each division knows its own profits and that of other
GLYLVLRQV1RZWKLV³FURVV-VXEVLGL]DWLRQ´LVTXestioned. Why should we get the same salaries and
bonuses as the less profitable units?
There was conflict between units that were supposed to be working together. For example, the production divisions
and sales divisions wanted to maximize their own margins.
Now, production divisions and sales divisions are different. They now fight over transfer prices.
Although 50% of the profits of the Sales Division are shared with the Production Division, there
are incentives for the Production Division to seek higher transfer prices. This often leads to a
blame game.
The fragmentation is also affecting employee mobility across divisions.
Before verticalization, employees would be allowed to have career graphs across product groups
as they were all considered employees of the same organization. Now lateral shifts to other
division has become more difficult as it requires the approval of the Global Product Group.
Confusion and Conflict
In addition to fragmentation of the organization, the changes led to multiple reporting lines which were a source of
confusion and conflict. An executive explained the situation in one division which consisted of three sub-units:
Verticalization requires multiple reporting which often creates some confusion and conflict. Take
the case of a division in India. The Head of the Division has to report to the MD of Bosch India
Limited for disciplinary purposes and to a person in the Asia region for his targets. Within the
division there are three verticals: Sales, Engineering and Manufacturing. The Head of the Division
may also be Head of Sales. The Head of Engineering reports to the Head of the Division for
disciplinary purposes, but reports to a different person in the Asia region for targets. Similarly, the
Head of Manufacturing reports to the Head of the Division for disciplinary purposes, but reports to
yet another person for targets. Each of them also has a functional reporting relationship with a
third person who may also be located in another geography.
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Bosch Group in India: Transition to a Transnational Organization
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Many senior managers who were familiar with the process when the Indian operations were run as a geographic
division were finding it difficult to operate in the new environment. One of the executives expressed it thus:
We now have a matrix organization. The importance of unity of command is no longer there. The
MD only has administrative charge ± salary and leave, etc. ± while the managers report to product
unit heads outside the country. People who cannot operate in a matrix structure find it difficult to
operate. A lot of their time is spent in conflict resolution.
Further, the multiple reporting created several situations when the confusion and conflicts could not be resolved
easily, and despite a very good structure and well laid-out processes, it allowed for personality clashes.
Multiple reporting relationships give scope for personalities to come into play. Strong and
assertive personalities dominate over the weak and submissive ones.
However, one of the executives thought that while some of these problems would have occurred in other countries
too, the problem was exaggerated in the Indian context.
Some of the conflict is unique to India. We are sure that our basic needs will be met even if the
business does not do better. We do not have a capacity to adjust. Some of us talk too much.
Voice of the Region May Be Lost
Since the new norms explicitly stated that in case of a conflict across the three types of reporting, the target
responsibility would have the final authority, it was normal for the Global Product division to overrule inputs from
the Indian operations. As an executive put it:
Earlier investment decisions were made in India. Now, investment decisions are driven by
divisions sitting in Germany. Sometimes, these investments may be unsuitable for the Indian
context. For example, the Global Division may want an investment in an automated assembly line
based on the European context. Even if in the Indian context, manual assembly may be more
suitable, the automated assembly line will have to be implemented based on a standard process.
As, in the global market, there might be other markets more attractive than India, the Global Product Group was
likely to give priority to another region over India even if the Indian managers might see potential in the local
markets. From the perspective of the Indian operation, a decision that was optimal in the eyes of the Global Product
Division might not be optimal for the performance in India.
There may be conflicts at the top. The Global Business Group will have global priorities and may
neglect India in preference to another geography which might be more promising. The Regional or
Country Head will have regional or country priorities and might see potential in the market that
the Business Group does not see as rewarding.
The scope of building products that were unique to India, and may not be visible to managers in the global product
divisions would get neglected.
Requirements of the local market may get neglected. An Indian client may develop an engine and
want us to develop a component, but we might not be able to take it up as it might not get the
approval of the Global Product Group. In the past, we have developed a hand-held marble cutter
which has a small but profitable market only in India. We might not be able to do that now.
There was less discretion in maintaining practices that were unique to the Indian context; for example, an incentive
trip of high performing dealers. It was a norm in the Indian context, and earlier Bosch used to follow that norm.
Later, as such decisions also required the clearance of the global divisions, it was more difficult.
There was more freedom for some administrative decisions before verticalization. For example, an
incentive trip was possible with local approval. Now, since this is not the practice in other
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Bosch Group in India: Transition to a Transnational Organization
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countries, it is difficult to get approval from the Global Product Group for such a practice which is
a norm in India
Resentment across Different Bosch Companies in India
The verticalization process also led to resentment across different Bosch companies operating in India. The new
reporting relationships treated all Bosch operations in India as part of the overall presence of Bosch in India. Hence,
there could be target, functional and administrative relationships cutting across different organizations. It affected
the target responsibilities in organizations that operated as independent firms:
Verticalization in India has led to reporting relationships across different legal entities. RBIC is a
separate company. But, its managers have to coordinate their decision with managers in other
Bosch Group Companies in India. The fact that somebody else is calling the shots is not
acceptable to them.
It also intruded into human resources decisions that were put into place separately.
Employees in India are employees of different companies in the Bosch Group. They have different
salary structures, incentive systems, and human resource practices. They now report to the same
person for their targets. He can recommend that they be rewarded or fired even if he is not part of
their organization.
DECISION ON THE NEXT PHASE OF VERTICALIZATION
After reading the brief, Vishwanathan had a complete picture of the opportunities and challenges ahead. He needed
to do something to ensure a smoother transition to the new structure and institutionalize the changes that were
already implemented. He contemplated having a plan of action ready for the next meeting of the Bosch Group in
India.
References
Peter Marks. The Bosch approach to globalization: Take the right road and navigate it smart, Robert Bosch GmbH
Automotive News World Congress, January 17, 2007, Hyatt Regency, Dearborn, Michigan.
Global Organization of the Bosch Group Information Package, December 2006.
Bosch Limited Profile 2011, Bosch Corporate Website
Bosch Company History, Bosch Corporate Website (English).
Bosch History at a Glance, Bosch Corporate Website (English).
Bosch India increasing capex by Rs. 250 crore, Hindu Business Line, March 6, 2009.
www.bosch.com
www.boschindia.com
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Bosch Group in India: Transition to a Transnational Organization
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APPENDIX
Exhibit 1
Performance of Bosch, 2005±2011.
2001
2006
2007
2008
2009
2010
2011
41461
43684
46320
45127
38174
47259
51494
Share outside Germany as percent
73
74
75
74
76
77
77
Annual average no. of associates (1000s)
249
258
268
283
275
284
303
located in Germany (1000s)
110
110
111
114
113
114
119
located outside Germany(1000s)
139
148
157
169
162
170
184
Capital expenditure (million Euro)
2923
2670
2634
3276
1892
2379
3226
R&D cost (million Euro)
3073
3348
3583
3889
3603
3,810
4190
Profit after tax (million Euro)
2450
2170
2850
372
±1214
2,489
1820
Sales revenue (million Euro)
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Bosch Group in India: Transition to a Transnational Organization
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Exhibit 28
Business Sectors and Divisions
Automotive Technology
Industrial Technology
Gasoline Systems
Diesel Systems
Chassis Systems Control
Electrical Drives
Starter Motors and Generators
Car Multimedia
Automotive Electronics
Automotive Aftermarket
Steering Systems
Automation Technology
Packaging Technology
8
Consumer Goods and
Building Technology
Power Tools
Thermotechnology
Household Appliances
Security Systems
Source: Bosch Website www.bosch.com
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Bosch Group in India: Transition to a Transnational Organization
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Exhibit 39
International Manufacturing Sites
9
Source: Energy and Environmental Challenges, Bosch Worldwide from www.bosch.com
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Bosch Group in India: Transition to a Transnational Organization
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Exhibit 410
Headcount by Region
Country/Region
Germany
Europe (without Germany)
Americas
Asia-Pacific
Total
10
2008
112,\300
(41%)
72724
(27%)
38,782
(14 %)
47459
(18%)
271265
2009
111710
(41%)
71730
(26.5%)
31709
(12%)
55538
(20.5%)
270687
2010
113500
(40%)
73000
(26%)
34000
(12%)
63000
(22%)
283500
2011
118700
(39.2%)
77600
(25.7%)
35200
(11.65)
71000
(23.5%)
302500
Source: The Bosch Group ± Facts, Objectives, Values at www.bosch.com, press releases
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Bosch Group in India: Transition to a Transnational Organization
Page 17 of 18
Exhibit 5
Global Organization of the Bosch Group
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Bosch Group in India: Transition to a Transnational Organization
Page 18 of 18
Exhibit 611
Business Sectors and Divisions of Bosch in India
Automotive
Technology
Industrial
Technology
Consumer Goods &
Building Technology
Software Services
Automotive Aftermarket
Automation Technology
Power Tools
Engineering and IT
Services
Diesel Systems
Packaging Technology
Security Systems
Gasoline Systems
Special Purpose Machines
Car Multimedia
Chassis Systems
Steering Systems
11
Source: Bosch Ltd. website www.boschindia.com
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