Asoka Spintex

6.12.2018

Group 09 - Section C
Prerna Meshram PGP09167
Subhrajit Saha PGP09180
Kashish Jain PGP09156
Jyoti Tandon FPM06.004
Hajrah Haider PGP09155
Srijan Raghav PGP09179

Q1) Was the decision to close down the weaving unit justified? Justify your position.
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The decision of closing down the weaving unit was justified because of the following reasons:
● Cost of Labour- The cost of labor was high in weaving
● Huge investments were needed to set up a spinning unit as compared to weaving and processing
units
● Purchase of raw materials: it is a specialized job that needs a good understanding of a variety of
cotton that cannot be done by everyone. This would give a competitive edge to the company
● 92% of fabric in the weaving sector was being manufactured by power looms which require high
supply of yarn that could only be provided by spinning units
● 90% of the looms at Ashoka were capable of producing only 36 inches finished fabric, even the
new automated looms produced 36 inches finished fabric whereas the requirement in the
international market was 64 inches finished and 63 inches grey fabric. For this more investment
was required.
● Great potential in the international market
● Certainty was a constraint- a certainty to get additional benefits after making huge investments in
weaving was not there.
● Profitability: Spinning was considered more profitable because of the lack of air and water
pollution, no investments were required to control the population
● Cycle time & working capital requirement: Spinning had lowest cycle time & lowest working
capital requirement
Because of all these factors, concentrating on spinning unit to supply good quality yarn was
thought to be a better option and shutting the weaving unit was a good decision.

Q2) Was the decision for the merger with Arvind Mills justified? Justify your position.
Yes, the decision of merger with Arvind mills was justified as:
● It would not have been possible to attain positive net worth at the end of the tenure of
rehabilitation scheme if the merger would not have happened because of high interest on old
outstandings & depreciation
● Arvind Mills had manpower, location advantage and also experience in turnaround another sick
company
● Arvind Mills had the resources and the past relation with the company hence it was the most
viable option
● When Ashoka had losses of Rs. 470 million in the year 1994, Arvind Mills had a profit of Rs.
1060 million which is taxable. With merger, the Arvind Mills would get tax benefits as well.
With this Tax benefit, it paid to creditors after the merger.

Q3) Reflection on the major managerial implications learnt from handling the situation given in the case.
1. According to Greiner, L. (1972). Evolution and revolution as organizations grow. Harvard
Business Review, 50, 37-46, the organization seemed to be in the formalization stage where it had
fully grown to its capacity where it needed the organization to delegate powers to lower level
managers to manage the decisions more effectively
2. Autonomy was completely missing which was introduced after B.B Sharma had taken the charge.
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3. They should have strongly thought about not giving up the weaving unit as it was their state-of-
the art machinery and their strength lay in weaving. An article by by Peter F. talks about
strengthening your strengths rather than the weakness
4. It is evident from the case that to increase efficiency of the organization it is imperative to cut
down on the workforce. Retrenchment has been an important factor in the turnaround story of
Asoka. It is also important to boost the morale of the high performers in the retrenchment phase
in order to keep them motivated.
5. The decline phase for Asoka started in 1986, under the pressure of continually declining
performance they made faulty and inappropriate action by which the performance further
declined. Asoka might have considered majorly first investing in spinning in 1986-87 itself
instead of doing the same in 1991.
6. As per the Weitzel, W. & Jonsson, E. (1989). Decline in organizations when the organization
enters the crisis stage only an effective organization wise intervention mechanisms like reorg,
restructuring should have been adopted for survival which were not adopted and hence the crisis
7. When the organization already has a substantial amount of debt it is important to focus on
repaying the debt first before investing extensively on new technologies. Asoka has been
financing their investments with more debts which reduced their credibility with the lenders
8. Leadership styles : Mr. Ajay Chimanbhai adopted the Autocratic style before the crisis stage
whereas this style should be prefered only during the crisis stage or after which clearly was
followed by B.B Sharma in terms of employee retention or firing measures.

Action Plan:

Areas (s) Specific Action Plan Time Post-

Period of implementation
Implement Follow Up
ation
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Production · As no improvement in the 0-3 Follow the sales

existing product quality can months report and
be achieved, try and feedback from
increase the volume to buyers to check on
increase market share the volume and
quality of the
· Train the workers and
product
maintain the machinery to
stop fluctuations in the
quality of products

Workforce In addition to performance 3-6 Internal company

development appraisal for every 6 months, months surveys to learn the
an incentive or reward impact the
programme can be introduced interactions have
to motivate workers to take on employee
care in maintaining the satisfactio
consistency of quality to avoid
fluctuations

Asoka's Financial figures for 1997-98

Net Sales 642.456

Net Purchases 350.77
PBIDT 291.686
Depreciation 53.83
Interest 12.67
PBT 225.186
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Corporate Tax(30%) 67.5558

Net Profit 157.6302