Cummins India - Consumer Driven Modularization Strategy

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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.

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.

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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.