BackMunjals bet on diversification for growth
The family behind Hero motorcycles is eyeing new opportunities as its third generation enters the business
Premium(Ramesh Pathania/Mint)
New Delhi: When Rahul Munjal, son of the late Raman Kant Munjal, founded Hero Future Energies Pvt. Ltd, a renewable energy firm, earlier this month, it marked another step in the diversification process at the $5.5 billion Hero Group, known largely, some would say almost exclusively, for its motorcycles.
It’s something the Bajaj, Ambani and Murugappa Groups have done in the past—and with 10 members of the third generation of the Munjal family looking for elbow room in the business, it was time the Munjals diversified too.
Yet, the emphasis isn’t simply on diversifying so as to find something for a young member of the family to do.
“The idea is if we can start, in our generation, three or four large companies and some of them can go up to become the size and scale of Hero MotoCorp in the next 15-20 years. Then you know that
An expert called the strategy “relevant in the current-day scenario".
“Since product life cycles are becoming shorter, and turbulence in any industry is high, it is important for them to consider new growth industries seriously," said K. Ramachandran, Thomas Schmidheiny chair professor of family business and wealth management at Hyderabad-based Indian School of Business.
Earlier this year, Rahul’s younger brother Abhimanyu founded the Hero Group’s financial services business Hero FinCorp Ltd. Hero Future Energies hopes to produce 1 GW power by 2016-17, Hero FinCorp. expects to have a ₹ 5,000 crore loan book by 2016-17.
Akshay, Rahul’s cousin and son of Suman Kant Munjal, managing director of Rockman Industries Ltd, is entering the education business by opening a university in Dharuhera, Rajasthan. Akshay’s brother Ujjwal works with his father at Rockman. The current managing director and chief executive of Hero MotoCorp Pawan Munjal has two daughters and a son. While his son, Anuvrata, studies abroad, Vasudha, the elder daughter, runs a chocolate boutique under the brand Chokola. The younger one, Supriya, has her own clothing line. Sunil Munjal, the youngest son of Brijmohan Lall Munjal and joint managing director of Hero MotoCorp, has a daughter and she assists Sunil at Hero Corporate Services Ltd that deals in business process outsourcing and other businesses. “The overall idea of the group is that we should be a truly diversified group. Not only in terms of businesses but also in terms of geographies. We need to have enough assets in different industries," Rahul Munjal said. “It is the third generation’s challenge to convert an automobile group into a diversified group."
According to K. Kumar, Apeejay Surendra Chair Professor of Family Business and Entrepreneurship at the Indian Institute of Management (IIM), Bangalore, two trajectories develop in tandem across time—one, the families become larger as the younger generations come of age and two, the core businesses become mature, highly competitive and stagnant.
“When these trajectories intersect, business families end up in a situation where there are limited opportunities with huge growth and profit potential available in the core businesses to involve an expanding group of family members, particularly the younger ones with huge aspirations and energy levels."
Kumar said that Hero’s moves are in keeping with the popular Three Horizons of Growth model propounded by consulting firm McKinsey and Co., and which is widely used to explain the how-to of both diversification and innovation. In Horizon 1 (current time), the group or company’s focus is on expanding and defending its core business; in Horizon 2, on exploring new opportunities and building emerging businesses; and in Horizon 3, on creating viable options.
Kumar said it is not uncommon for second- or third-generation family members to use the family corpus to venture into the businesses of the future. In the Munjal’s case, the second generation of the family, especially Sunil Kant Munjal, did try to diversify—but his efforts were limited to business process outsourcing under Hero Corporate Services.
One reason why groups diversify widely in the third generation is also because family ties start to loosen about then, said Dwijendra Tripathy, a former Kasturbhai Lalbhai professor of business history at IIM, Ahmedabad, widely recognized as India’s preeminent expert on family business groups. According to him, such moves give younger people an opportunity to think for themselves.
Indeed, Rahul has no regrets that he does not get to play an active role in a company that was founded by his late father.
“Because it was founded by my father, there is an emotional attachment to it. (But) I would like to have my own identity. I would be known for something that I have done and try to make a difference," he said.
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