Cummins India - Consumer Driven Modularization Strategy

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Case Details:

Case Code : MKTG104
Case Length : 15 Pages
Period : 1999-2004
Pub Date : 2005
Teaching Note :Not Available
Organization : Cummins India
Industry : Power Gensets, Diesel Engines
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Over the years, consumer packaged-goods companies have reduced their products' unit size in emerging markets to unlock demand among consumers who can't afford bigger portions...What if companies took this approach with more expensive purchases...? Cummins, the producer of diesel engines and power generators, recently did just that in India. By modularizing a product for the distinct needs of different kinds of customers and channel partners, the company cut the total cost of ownership and of sales in the channel. The result: higher demand for Cummins products."¹

- John Hagel III and John Seely Brown, The McKinsey Quarterly 2005, Number I.

Gensets in India

In 2004, India was the world's sixth largest energy consumer, consuming about three per cent of the world's total energy production. India's population is growing at a rate of about 1.6 per cent per annum and is expected to reach 1.16 billion by the year 2010.

The country's projected increase in electricity consumption, between 2.6 per cent and 4.5 per cent per annum till 2020, is the highest for any major developing country in the world. The increase in population coupled by rapid economic growth means that India's energy requirements would be much above the country's energy production capacity.

India's power and energy industry has faced problems of under capacity production² due to heavy reliance on hydro electricity, which in turn depends on unpredictable and sometimes insufficient rains. In 2005, the under capacity utilization resulted in a 12% shortage in electricity production. Apart from this, other problems like unauthorized usage, theft and loss of power in transit have aggravated the power shortage problems.

Moreover, there are often significant voltage fluctuations in the power supply which can damage household and industrial electrical equipment. Not only the industries and agriculturists but household consumers, too, have been severely affected by the chronic power shortages.

The Electricity (Supply) Act 1948³ was amended in 1991, permitting private power producers to start their own power projects to meet the increasing power demand. The Government of India (GOI) also broadened its power policies to permit the use of diesel engine based power generating units (Refer Table I for end user profile for engines).

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1] John Hagel III and John Seely Brown, “Innovation Blowback: Disruptive Management Practices from Asia,” www.mckinseyquarterly.com, 2005 Number I.

2] The inability to produce at the optimum production capacity level due to various constraints.

3] The Act aimed at rationalizing the supply of electricity and taking measures conductive to the production of electricity development in India.