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IN
MANAGING ORGANIZATIONS
A Group Project | Group 13 Sec E Amandeep Singh, Vishnupriya, Srikanth Prabhu, Vaibhav Bindroo, Tamojit Tarit Roy
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CONTENTS
RedBus.in- The Making of a Success ............................................................................................................................... 3 Growth Trajectory of RedBus.in ..................................................................................................................................... 3 The Environment of Operations ..................................................................................................................................... 4 RedBus contributes to a change in the landscape ..................................................................................................... 4 Environment creates strategy..................................................................................................................................... 5 Revenue Generation Model: Where does the money come from? .............................................................................. 6 Structure Follows Strategy: The Evolution of Structure during the journey ................................................................. 7 Start-Up: ...................................................................................................................................................................... 7 Scaling Up: ................................................................................................................................................................... 7 High Market Penetration: ........................................................................................................................................... 9 Impact of Technology.................................................................................................................................................... 10 Transition to Cloud .................................................................................................................................................... 10 Seller Distribution Network ...................................................................................................................................... 12 Mobile Applications .................................................................................................................................................. 12 Culture ........................................................................................................................................................................... 13 Adaptability Culture .................................................................................................................................................. 13 Clan Culture .............................................................................................................................................................. 14 Future Growth Strategy ................................................................................................................................................ 18
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End of FY 2008-09: a. Turnover of 30 crore. b. Had secured series B funding3 End of FY 2009-10: a. Turnover of 46 crore. b. 230 employees and serving 10 locations End of FY 2010-11: a. Turnover of 116 crore. b. Over 250 employees End of FY 2011-12: a. Secured series C funding3 b. Turnover of 340 crore. c. 470 employees, 10 offices, services in 24 cities. d. Had enrolled over 800 private operators and 2 government operators. As of date: a. Over 10,000,000 tickets sold. b. Growing at 250% per annum. c. Largest player in the Bus Ticket Industry.
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iv. Challenges in managing cash flows from and to multiple operators and customers c. Customers: i. Paucity of credible service providers has created trust issues ii. Customers have viable alternatives like railways etc, bus travel is generally the last option and is very seasonal in nature. iii. Poor comfort, services to customers have driven customers away. iv. Skepticism about online payments hinders e-commerce based options The overbearing challenge faced by the company, therefore was to play the role of an integrator in the fragmented market to serve its ultimate goal of ensuring that Everyone travelling in a bus should have a ticket issued by redbus. It is also apt to mention here that redBus, by playing the market creators role has not only added tremendous value to its own top-line but has also positively impacted the very environment in which it operates. Experts like Forbes India have commented that redBus has had a Knock-on effect on key players like agents, bus operators and even bus makers like Volvo by pushing up their sales and making bus travel a lot more lucrative proposition both for the traveler and the providers of services in the space. In fact, it would shortly become evident that the company has astutely managed its environment and has since its inception devised strategies followed by roll out of innovative products to capture this large, unexplored market.
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effectively setting foot onto the much fancied Business to Customer (B2C) market. The LIS based B2C model essentially generates revenues by acting as a common platform for interaction between bus operators, managing their inventories through BOSSTM or any other SaaS, and the end traveller looking for a vacant seat on a particular route and indifferent to the operator running the bus (limited to the amenities provided by each group of operators). This business model caught the attention of the average bus traveller and went viral, as the company began earning the big bucks. Important to note here is the fact that the services of redBus didnt end with the transfer of tickets alone, but the company was determined to create more value for the end traveller by maintaining contact with the customer up to the point of boarding the bus. Eventual innovations made the service even more popular among the masses. One such innovation was the company enabling ticket less travel on the basis of confirmation SMS sent post payment during ticket booking, further delivering freedom to the customer. Having assiduously pursued market making for over 6 years, the company claims that they have probably about 60 per cent of market share5 . Thus, with a saturating B2C market, the future growth of the company clearly lied in devising a new business strategy or by entering a new market, where they could once again play the role of Market Creator. Thus, in August, 2012 the company, after devising a clearly defined road map for the company, entered the Business to Business (B2B) model. They extended their engagement to the third player in the trio- the bus agents. The technological platform essential to create this additional revenue stream was developed by the in-house product development team of redBus.in and emerged in the form of a critically acclaimed Global Distribution System (GDS) named Seat Seller TM. The popularity of this product can be gauged from the fact that Seat SellerTM has even been adopted by many of the travel websites who compete with Redbus on bus ticketing, like Yatra.com and Expedia.co.in 6. RedBus claims that its strategy shall remain concentrated on bus ticketing and that with the help of the existing and perhaps new business platforms, they have the potential to grow 10x and become a 3000-4000 crore revenue company7.
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However, when it comes to their present cash cow i.e. revenue generation through the B2C model, the company charges about 10% of the cost of every ticket sold. The company sells tickets under the B2C model through three main channels: a. Online sale of tickets, completed by payment online. b. Sale of tickets through call centre, payment by debit/credit card. c. Sale of ticket by field agents, home delivery of tickets. The point (c) is interestingly a mechanism to hedge against the risk of migration of the potential, online payment averse, redBus customer, by giving her the option to pay the due amount to a real person after being handed over a real RedBus ticket. More reason to suggest that Environment Drives Strategy! Having talked about strategy of the organisation, here on, through our report, we shall endeavour to portray RedBus development of a dynamic structure designed to both tackle the inherent environmental uncertainties as well as align its strategy with its long term vision in a way which has created tremendous value for its customers and promoters alike, all this with critical support from the timely introduction of state-of-the-art technology into the processes and control mechanisms.
Start-Up:
To begin with, the organisational structure looked and felt like most start-ups do- Horizontal hierarchy, not much differentiation, great deal of interaction between the very few members on the team, very low formalisation and thus was clearly an organic organization. The Mintzberg structure for the company would look like the figure shown here corresponding to the Simple Structure.
Scaling Up:
With the realization that the company was scaling up and was beginning to spread across different geographies within the country, the need for increasing the complexity of structure was also felt.
8
http://daviddewolf.com/2011/09/align-your-organization-with-your-strategy/
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Specialists were inducted into the team gradually and a functional structure was formed, aimed at implementing the strategy of the company to capture maximum market share in the bus ticket space by inducting the maximum number of bus operators into their network. They realised that product innovation and cutting edge product development would be the key in luring more bus operators to join hands with the company and hence A CPO was hired to concentrate on new product development. During the same time a CTO was hired who would look after optimising the engineering and technology requirement of the organisation and thus its clients as it was growing at a breakneck pace. Some-time during 2010 a CFO was hired to manage the funding and finances of the now 30 crore company. Call centre operations were also started, based out of Bangalore, during those middle years and most of the business development was done from their head office in Bangalore. Quite importantly, it was during this time that the company migrated to using Cloud Computing as a technology option for supporting all its needs as a technology provider. However, interestingly so, the HR functions of the company were outsourced, probably because of the noncore nature of the activities and to reap the cost benefits of the absence of a large cost potential cost centre. The hierarchy diagram below tries to show the organisational structure during that period of time.
CEO
CFO
CALL CENTERS
BUSINESS DEVELOPERS
CPO
CTO
HR (OUTSOURCED)
HEAD, OPERATIONS
HEAD FINANCE
PRODUCT HEAD
ENGINEERING TEAM
OPERATION TEAM
FINANCE TEAM
Broadly put, these changes introduced the following characteristics to the organisational design of redBus: a. Creation of new departments, leading to specialisation and efficiency. b. Creation of a dedicated operating core (in the Mintzberg model) in the form of call centres, business development staff and technical support staff. c. Creating of a certain degree of centralization with all major functions being tied to the corporate office and reporting to CEO.
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CEO
CFO
REGIONAL DIRECTORS
CPO
CTO
HR (OUTSOURCED)
HEAD, OPERATIONS
HEAD FINANCE
CALL CENTERS
BUSINESS DEVELOPERS
PRODUCT HEAD
ENGINEERING TEAM
OPERATION TEAM
CORPORATE FINANCE
Conspicuously still, the HR functions continue to be outsourced by redBus, though the company appears to be pondering over having an in-house HR department shortly. Broadly put, this wave of restructuring introduced the following characteristics to the organisational design:
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a. Creation of an autonomous regional structure, enabling the organisation to deal with the regionalised market in a far more nuanced manner. b. A small techno-structure (in the Mintzberg model) was created within the product development team who were responsible for tracking the market, analysing customer preferences and helping the company design better products. c. Strengthening of the middle-line, empowering the middle managers to conduct business operations freely. d. Creating of a certain degree of decentralization with many major functions being delegated to the regional offices, overlooked by the regional directors. Analysts suggest that most of the online (ticket booking) action is limited to Tier I cities, while Tier II and Tier III towns, with their limited internet penetration, are still to be tapped. 9 Thus clearly, redBus has responded to the market forces astutely and the creation of the regional structure may prove to be a master stroke, in light of the future of volume growth dependent on tier-2 and tier-3 cities and the expected surge in internet connectivity in these cities especially with the advent of new age technologies like 4G crowding the metros.
Impact of Technology
For a growing start-up in internet domain, role of technology in shaping business and hence the trajectory of growth cant be underplayed. Redbus, fundamentally a technology driven company highly leveraged Information Technology (IT) to propel its business and come up with innovative solutions to tap the unorganized bus travel sector. The report already has detailed descriptions of trademarks products that company offers to serve B2C and B2B segments. In this section, we cover the impact technology had in propelling Redbus in next phase of growth which made it the leader in online bus travel industry.
Transition to Cloud
Redbus, with an e-commerce B2C solution was growing very fast. As a result, near zero downtime and ability to handle peak traffic were becoming a must for redbus to attract more customers. However, Redbus had a physical data centre which constrained the capacity of developers to upgrade quickly, maintain high levels of serve time without purchasing new hardware and lead to loss in productivity. "The procurement of new servers, upgrading existing servers and most of the developer's time went into circumventing scaling issues which were not adding values to our core business. That's when we decided to try out the cloud," says Charan Padmaraju, co-founder and CTO of Redbus. Realizing the same, the team decided to move the entire infrastructure to AWS cloud to solve the problems of elasticity, scalability and monitoring. As a result of this move, redbus was able to offer multiple versions of its cloud based SaaS model to operators without compromising on availability devote more of developers time on business application s and scale on-demand. Because of this move in 2008, Redbus essentially reaped following benefits :
9
http://www.inventuscap.com/news.php?p=story&s=RedBus_staggering_growth2012
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i. Business differentiation. Cloud based solutions enabled Redbus to deploy new applications at ease, on-demand and without worrying about scalability and operation issues. Transporting full stack on Amazon cloud made them the first big player in online bus travel to be 100% cloud-centric. This not only beefed up their ability to serve high volumes of traffic without affecting their business but offer multi-tude of new services to bus operators without server downtime. ii. Competitive advantage Innovation is the key when it comes to sustaining in a fast-paced and dynamic industry. Impact of transition to cloud for all its infrastructure and development needs enabled Redbus to iterate faster, focus on core business solutions and hence provide array of solutions in less time. This is best summarized in words of padmaraju himself The use of cloud technology has given us the competitive edge that helps us to innovate quickly,.10 . iii. Scalability AWS cloud platform is inherently scalable and elastic. With the concept of elastic IPs and amazons built in services for tighter integration, fail-over and redundancy building becomes easier. Achieving scalability meant that Redbus didnt have to worry about consumer traffic as it was well-suited to handle spikes in traffic due to availability across time zones and increased reliability. iv. Cost Benefit When operating in a high volume low-transaction market, cost efficiency needs to be a core competency. And Redbus essentially Cloud based operatons gave them exactly that. AWSs ondemand availability of new machines and tiered pricing model meant that Redbus had to pay on a use-basis. Due to this, they were able to achieve cost benefits of more than 30 percent. This proved to be a major impact that technology had on day-to-day business of the company.
10
http://www.cio.in/case-study/taking-their-infra-cloud-helped-redbus-use-it-create-real-business-value
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Mobile Applications
The mobile phone market in India is growing at an alarming pace and more and more customers are switching to mobile for their daily information consumption needs. Recognizing the scope of mobile penetration in India, Redbus decided to foray into mobile space as well to extend the convenience to the end-customer. This was a decisive step as India has the world's second-largest mobile phone user base with over 929.37 million users. It has the world's third-largest Internet user-base with over 137 million users as of June 2012. i. iPhone and Android apps Redbus started off with delivering ticket booking sevice on mobile phones by partnering with ngpay. Ngpay is a gateway for online payments which is very secure and reliable. Customers could download the mobile application by redbus and book tickets on the go. This addition makes redBus, to bring value proposition as one of the early stage bus tickets company to provide such a feature in the Indian market. Mayank Bidawatka, redBus Head-Marketing, said, We have been
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setting benchmarks in innovative features in this industry, and this one is another feather in our cap. This mobile application will take booking bus tickets to another level11. As the intitiative tasted successs, Redbus offered this service across all platforms like Android and iOS to capture the growing smart-phone segment in India and rightly so.
ii. Real time ticket availability Because of its foray into mobile applications to serve the growing customer base there, Redbus had now solved an important problem. Customers, who previously couldnt book tickets in advance due to irregularities and non-adherence in bus travel market could monitor the availability of tickets in advance and book them on-the-go. This greatly faciliated the whole booking process and increased sales for Redbus from the mobile market segment. In nutshell, Redbus played technology to its greatest advantage and bought lot of industry-first innovative features which let it take the lead in the unorganized online bus travel industry in India.
Culture
Culture at RedBus can be best represented in the companys own motto Learn, Implement, Grow - and have fun . As a growing start-up, Redbus faces a lot of challenges and unsolved problems on a daily basis. By imbibing a culture of learning and encouraging people to come forward with their mistakes, it has developed a culture of self-empowerment and trust. With an employee base of roughly 600 spread across cities, the culture at company can be best described as an intersection of adaptability and clan culture. This culture has been cultivated over the years and has helped Redbus stay a small growing company while crossing a magnificent 1 crore bus tickets in sale. We studied the culture and dissected the various features of its emerging culture as follows :
Adaptability Culture
i. Focus on Customers RedBus has remained a customer-cetric company from its inception and has continued to be that way. This aspect of its culture clearly distinguishes it from other players in the market. Pahnis vision has rightly been imbibed amongst the employees in terms of seeing customer convenience as the end result of their work. Even though the company had grown rapidly and was able to raise a lot of capital, the founders kept constant focus on low costs. They decided very early that the
11
http://www.indiaprwire.com/pressrelease/travel/200805159554.htm
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company would have a distinct culture, which would be built on the principle of low cost operations, professional integrity and better customer service.12 ii. Rapid adaptation to environmental changes Bus Travel industry in India is a highly unorganized market and is very dynamic in nature when it comes to needs of customers, changing heuristics to size the market, tapping the operator network etc. By being very adaptable and responsive to environmental changes, Redbus has allowed itself to respond to this changes in a very innovative manner by dishing out trademark products like BOSS, Seat-Seller etc. in due course of time. Transition to Cloud at the right time is an example too. iii. Transparency in operation RedBus, as a company has maintained transparency in its operations which has been possible due to inclusive leadership of Phani. Employees are aware of major happenings in the company and are never at shock when it comes to public announcements or internal happenings. This has given employees a sense of ownership and responsibility. They treat the company as their own and work together for collective growth. Though the company had not come out with a formal code of ethics, but the founders believed that to be a successful organization, it needed to portray transparency, integrity and honesty to elicit trust. This focus on transparency and honesty helped them in building a strong relationship with various stakeholders including Venture Capital firms, bus operators, employees and others.12 iv. Innovation One of the major aspects of the companus culture has been innovation. This has righly been reflected at numerous instances in this report and otherwise. It has been a market leader in adding innovative feathers to its hat from being the first big entrant in the e-travel industry to establishing and channelizing one of the largest bus operator networks in India.
Clan Culture
i. Close knit team Redbus, being a growing start-up still maintains an air of closeness among its employees. Ability to work together closely in teams and drive product development and operations is what makes Redbus tick. ii. Employee Satisfaction By following a very open and learning-based culture, Redbus essentially takes care of the desires of its employees. From giving them competitive perks to performance based bonuses and great
12
http://ajc.sagepub.com/content/8/2/171.full.pdf+html
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career options, Redbus has made sure that employees are satisfied with their work and are able to contribution to the growing success of the company. iii. Empowers employees One of the fundamental aspects of Redbuss culture is employee empowerment. Be it encouraging them to come up with new ideas to solve business problems, accepting their mistakes on the day job to identifying right talent among them to lead initiatives, self-empowerment and leadership is given due emphasis and is encouraged. This is one of the main reasons that most of their products are made in-house as employee collaboration is high and sense of responsibility powers that. iv. Encourages Intrapreneurship An exemplary leader always understands the power of new ideas and ability to change lives. Phani and his team share the same story. They encourage new ideas to take root and if in synergy with the business plans of the company are given due importance and nurturing. This leads to a culture where everyone thinks and acts like an entrepreneur striving hard to make the best use of the resources at hand. Culture at RedBus has been one of the key reasons Redbus has been able to move so fast and adapt to dynamic and fast-changing environment. Be it innovation, close-knit team or selfempowerement, these facets in one way or other have nurtured a culture which is paving the way for success for the company and will continue to do so in the long run.
Clan
Adaptability
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1. Threat of entrants:
Bus travel industry in India to a large extent remains an unorganized and fragmented sector. Redbus has been trying to solve this problem in an efficient manner since 2006. Due to the success it has tasted and the potential of the industry in general to accomodate more players, the industry has seen lot of new entrants. One of the main driving factors have been : i. Company growing at 2.5x for last 3 yrs The rapid growth of Redbus in the last 3 years was too glaring to be missed and competition started making its entry. However, Redbus founders did not see this as a threat as there was a huge untapped market and the entry of professional players would only organize the market further. Morever, bus inventory management and operational capabilities of redbus are their core competencies which is difficult for newer players to inculcate. ii. Invites competition from other e-commerce players Redbus faces competition from Ticketvala.com and Indiabusticket.com and a few other players in the existing online travel market like MakemyTrip etc.. But they have not been able to replicate the business model of the redbus in entirety largely due to the large customer traction that Redbus enjoys and effective partnership with bus operators.
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As stated by Phani, The competition may have been able to imitate our business model, but they couldnt copy our DNA.
2. Power of Customers:
Since online bus travel has primarily remained a B2C segment with technology backed companies making the foray into the market, power of customers cant be underestimated. Some of the factors that can be identified concerning power of customers are as under: i. Demand for better services Redbus enjoys a fairly large customer traction and revenue from online sales through its ecommerce platform still forms a major chunk of its total revenue. Given that Rebus is a customercentric company, customer demands need to be taken into account. These include better services, fairer prices, innovative payment mechanisms like COD etc. to please the end customer. Redbus has been able to take care of these demands reasonably well which explains its positioning in the market. ii. Ground staff required In order to provide an effective 360 degree solution and to solve last-mile problems related to customer convenience, company may have to employ more staff at the ground level to deal with local bus operators and necessitate smooth operations. This is also required for better brand positioning and trust with end consumers.
4. Threat of substitutes
Bus travel segment is getting organized as more and more players come in and roads keep getting better. In fact, A/C buses have witnessed a rapid growth since 2008 and players like Volvo,
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Mercedes and other manufacturers have estimated a growth rate of 40 per cent per annum for this segment. Despite this, threat of substitutes exists which have been underlined below: i. Improved Rail services When it comes to travel between two cities, Indian Railway Network has been a major player in the industry. It is a perfect substitute for the bus travel with increasing number of trains running between stations and providing better services and comfort like Jan Shatabdi, Rajhdhani etc. ii. Private taxi services Introduction of private taxi services in the organized sector also pose a threat to bus travel. This largely caters to middle income groups and last-minute travel arrangement scheduling. An example of this is Ola cabs inter-city taxi services.
5. Power of Suppliers:
Bus travel operators are the main operating entities in this market as they are the one in control of the bus inventory. And this segment too is very fragmented consisting of players who own fleet of more than 20 buses to players who own less than 5 buses. As a result, power of negotiation still lies to suppliers when it comes to seat seliing and partnership. One good thing that Redbus has done in this regard is to keep commissions constant even when it was selling more than 90% of seats for big operators. This lead to increased trust and better partnerships. However, due to increased competition in this market and computerization of inventory management, suppliers may demand reduction in margins and decreased credit cycles.
Increase geographical footprint The initial expansion strategy of redbus mainly focused on expanding to the major Indian cities, particularly concentrated in the south. The focus more has been to get a bigger slice of the bus ticketing pie. However it could look to increase the size of this pie by penetrating across tier-2 cities as well as spreading its reach across geographies, particularly Northern and North Eastern regions. The expanded reach would serve two causes a) It would widen its customer base b) It would also widen its supplier network by looping in local players in the region thus giving consumers more options and hence promoting a competitive environment leading to an efficient and a cost effective service by operators.
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Redbus is currently the market leader in online bus ticket booking industry in India. The increase penetration of internet usage in India especially in the tier 2 cities is also reflecting in the number of hits that redbus online portal receives. Thus redbus is host to valuable user related information that it stores in its databases. Specific data if collated in an appropriate way would end up being huge value adds to other players in the industry such as agents and operators. For example, trends in unsuccessful user searches where the many users are not able to find bus connections between two specific destinations could be a valuable piece of information for bus operators to ply buses in these neglected routes.
Brand Marketing through Electronic and Print Media Quite incredibly the growth trajectory that redbus has seen is primarily due to word of mouth! Marketing and Advertising its brand is an unexplored territory as far as redbus is concerned. However with its imminent plans to spread its reach in terms of operations, it makes commercial sense for redbus to market its brand through electronic and print media. This would increase the proportion of people switching over to online booking and hence would improve Redbus market share.
Tap into Offline Distribution Model and Mobile Booking Redbus could also look at collaborating with technology firms to increase penetration beyond its traditional online portal based service. This could be aimed at particulary targeting rural areas where internet penetration at individual households is low. It has already successfully tested this model in collaboration with Comat Technologies in Karnataka through their Nemmadi telecentres. This concept could be expanded further. Additionally focus could be given on mobile ticket booking through user friendly smart phone apps as well as through call service.
Bus Lounges As mentioned earlier, Redbus should definitely seek to market its brand for better penetration, one novel way of doing it is by setting up bus lounges. Redbus could set up bus lounges/shelters at bus boarding points and provide facilities such as internet, mobile charging, restrooms etc. and also use this avenue to market its brand.
Become the de-facto ticket booking platform in govt. run bus sector Redbus already has a couple of success stories in turning around loss making state bus corporations in Goa (Kadamba Transport) and Rajasthan to profit making institutions. Synergies like these could be identified in the other states and Redbus could take the lead in offering online
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ticket booking service to state transport corporations, thus becoming the de-factor ticket booking platform for Government run bus sector. This would boost its market share hugely.