Hr Coca Cola and Dabur
Transcript of Hr Coca Cola and Dabur
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"We had grown but we hadn't structured our growth."
- Dabur sources in 1998.
"Three major strands have emerged in Coke's mistakes. It never managed its infrastructure, it
never managed its crate of 10 brands, and it never managed its people."
- Business World in 2000.
HR Restructuring - The Coca Cola & DaburWay: The Leader HumbledIt all began with Coca Cola India's (Coca-Cola)
realization that something was surely amiss. Four
CEOs within 7 years, arch-rival Pepsi surging ahead,
heavy employee exodus and negative media reports
indicated that the leader had gone wrong big time.
The problems eventually led to Coca-Cola reporting
a huge loss of US $ 52 million in 1999, attributed
largely to the heavy investments in India and Japan.Coca-Cola had spent Rs 1500 crore for acquiring
bottlers, who were paid Rs 8 per case as against the
normal Rs 3. The losses were also attributed to
management extravagance such as accommodation
in farmhouses for executives and foreign trips for
bottlers.
Following the loss, Coca-Cola had to write off its
assets in India worth US $ 405 million in 2000.
Apart from the mounting losses, the write-off was
necessitated by Coca-Cola's over-estimation of
volumes in the Indian market. This assumption was
based on the expected reduction in excise duties,
which eventually did not happen, which further
delayed the company's break-even targets by some
more years.
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Changes were required to be put in place soon. With a renewed focus and energy, Coca-
Cola took various measures to come out of the mess it had landed itself in.
The Sleeping Giant AwakesIn 1998, the 114 year old ayurvedic and pharmaceutical products major Dabur found
itself at the crossroads. In the fiscal 1998, 75% of Dabur's turnover had come from fastmoving consumer goods (FMCGs). Buoyed by this, the Burman family (promoters and
owners of a majority stake in Dabur) formulated a new vision in 1999 with an aim to
make Dabur India's best FMCG company by 2004. In the same year, Dabur revealed
plans to increase the group turnover to Rs 20 billion by the year 2003-04.
To achieve the goal, Dabur benchmarked itself against other FMCG majors viz., Nestle,
Colgate-Palmolive and P&G. Dabur found itself significantly lacking in some critical
areas. While Dabur's price-to-earnings (P/E) ratio1 was less than 24, for most of the
others it was more than 40. The net working capital of Dabur was a whopping Rs 2.2
billion whereas it was less than half of this figure for the others. There were otherindicators of an inherently inefficient organization including Dabur's operating profit
margins of 12% as compared to Colgate's 16% and P&G's 18%. Even the return on net
worth was around 24% for Dabur as against HLL's 52% and Colgate's 34%.
The Burmans realized that major changes were needed on all organizational fronts.
However, media reports questioned the company's capability to shake-off its family-
oriented work culture.
Restructuring the MessThe Coca-Cola Way
In 1999, following the merger of Coca-Cola's four
bottling operations (Hindustan Coca-Cola Bottling
North West, Hindustan Bottling Coca-Cola Bottling
South West, Bharat Coca-Cola North East, and
Bharat Coca-Cola South East), human resources
issues gained significance at the company. Two new
companies, Coca-Cola India, the corporate and
marketing office, and Coca-Cola Beverages were the
result of the merger. The merger brought with it
over 10,000 employees to Coca-Cola, doubling the
number of employees it had in 1998.
Coca-Cola had to go in for a massive restructuring
exercise focusing on the company's human
resources to ensure a smooth acceptance of the
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merger. The first task was to put in place a new
organizational structure that vested profit and loss
accounting at the area level, by renaming each
plant-in-charge as a profit center head.
The country was divided into six regions as against the initial three, based on consumer
preferences. Each region had a separate head (Regional General Manager), who had the
regional functional managers reporting to him. All the Regional General Managers
reported to VP (Operations), Sanjiv Gupta, who reported directly to CEO Alexander Von
Bohr (Bohr). The 37 bottling plants of Coca-Cola, on an average six in each region, had
an Area General Manager as the head, vested with profit-center responsibility. All the
functional heads reported to the Area General Manager. Coca-Cola also declared VRS at
the bottling plants, which was used by about 1100 employees.
The merger carried forward employees from different work cultures and different value
systems. This move towards regionalization caused dilution of several central jobs, with
as many as 1500 employees retiring at the bottling plants. The new line of control
strengthened entry and middle-level jobs at the regions and downgraded many at the
center. This led to unrest among the employees and about 40 junior and middle-level
managers and some senior personnel including Ravi Deoi, Head (Capability Services)
and Sunil Sawhney, Head (Northen Operations), left the company.
As part of the restructuring plan, Coca-Cola took a strategy level decision to turn itself
into a people-driven company. The company introduced a detailed career planning
system for over 530 managers in the new setup. The system included talent
development meetings at regional and functional levels, following which
recommendations were made to the HR Council. The council then approved and
implemented the process through a central HR team. Coca-Cola also decided that the
regional general managers would meet the top management twice a year to identify
fast-track people and train them for more responsible positions. Efficient management
trainees were to be sent to the overseas office for a three-week internship. To inculcate
a feeling of belonging, the company gave flowers and cards on the birthdays of the
employees and major festivals.
Coca-Cola also undertook a cost-reduction drive on the human resources front. Many
executives who were provided accommodation in farm-houses were asked to shift to
less expensive apartments.
Restructuring the Mess Contd...The company also decided not to buy or hire new
cars, as it felt that the existing fleet of cars was not
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being used efficiently. In the drive for 'optimum
utilization of existing resources,' Coca-Cola decided
against buying a Rs 50 crore property in Gurgaon
and it also surrendered a substantial part of its
rented office space in Gurgaon, near Delhi. Company
officials felt that this was justified because a lot of
officials had moved out of the Delhi headquarters
due to the localization. Moreover, this was
necessitated by the resignations and sackings.
Salaries were also restructured as part of this cost-
reduction drive. Coca-Cola began benchmarking
itself with other major Indian companies, whereas it
was offering pay packages in line with international
standards. Coca-Cola also realigned some jobs
based on the employee's talent and potential.
However, the company's problems were far from
over. In March 2000, Coca-Cola received reports of
wrong doings in its North India operations. The
company decided to take action after the summer
season.2
In July 2000, Coca-Cola appointed Arthur Anderson to inspect the accounts of the North
India operations for a fee of Rs 1 crore. The team inspected all offices, godowns, bottling
plants and depots of Jammu, Kanpur, Najibabbad, Varanasi and Jaipur. The findings
revealed that the North Indian team had violated discounting terms and the credit
policy, apart from being unfair in cash dealings. The team was giving discounts that
were five times higher than those given in the other regions of the country. There were
also unexplained cancellations and re-appointments of dealerships.
In light of the above findings by Arthur Anderson's team, Coca-Cola carried out a
performance appraisal exercise for 560 managers. This led to resignations en masse.
Around 40 managers resigned between July and November 2000. Coca-Cola also sacked
some employees in its drive to overhaul the HR functioning. By January 2001, the
company had shed 70 managers, accounting for 12% of the management. Bohr said, "I
had to take tough decisions because the buck stops here. We needed to weed out
certain practices. That's an important message sent out - that we'll take action if we
can't work on principles of integrity. The investigation was the right thing. The businessis healthier now."
However, media reports revealed a different side of the picture altogether. The
managers who had quit voiced their thoughts vociferously against Coca-Cola, claiming
that the whole performance appraisal exercise was farcical and that the management
had already decided on the people to get rid of. They termed the issue as Coca-Cola's
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'witch-hunt' in India. Reacting to the management's comments regarding discount norm
violations, one former employee commented, "All discounts were cleared by the top
management. They always pushed for higher volumes and said profitability is not your
problem. So, we got volumes at whatever costs. Nobody told us this was an
unacceptable practice." This seemed to be substantiated by the fact that in the Delhi
region, which consumed only 6000-8000 cases per day, the sales team received a target
of pushing 25,000 cases a day. It was commented that this was done so as to 'make
things look good' when the company sent its financials to the global head quarters. It
was also reported that the performance appraisals and the subsequent dismissals were
carried out in a very 'inhuman' and 'blunt' manner.
Worried by such adverse comments about the company, Alexander decided to take steps
to ensure a smooth relationship with the new people in the company. He personally met
the finance heads in every territory and made the company's credit policy clear to them.
Coca-Cola also standardized the discounting limits and best practices irrespective of
market compulsions. The company launched a major IT initiative as well, to make thefunctioning of the entire organization transparent at the touch of a button. Things
seemed to have stabilized to some extent after this. Justifying the decision to let go off
certain personnel, Alexander said, "We don't mind those quitting who were just okay.
We told them where they could hope to be, based on their performance. Some who have
left may not have had a good career with Coke."
The Dabur WayDabur's restructuring efforts began in April 1997,
when the company hired consultants McKinsey & Co.
at a cost of Rs 80 million. McKinsey's three-fold
recommendations were: to concentrate on a few
businesses; to improve the supply chain and
procurement processes and to reorganize the
appraisal and compensation systems. Following
these recommendations, many radical changes were
introduced. The most important was the Burmans'
decision to take a back seat. The day to day
management was handed over to a group of
professional managers for the first time in Dabur's
history, while the promoters confined themselves to
strategic decision making.
Dabut decided to revamp the organizational
structure and appoint a CEO to head the
management. All business unit heads and functional
heads were to report directly to the CEO.
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In November 1998, Dabur appointed Ninu Khanna as the CEO. The appointment was the
first incident of an outside professional being appointed after the restructuring was put
in place. Ninu Khanna, who had previously worked with Procter & Gamble and Colgate-
Palmolive was roped in to give Dabur the much-needed FMCG focus. Dabut had also
appointed Cadbury India's Deepak Sethi as Vice President - Sales and Marketing - Health
Care Products division; Godrej Pilsbury's Ravi Sivaraman as Vice President - Finance and
ABB's Yogi Sriram as Vice President - HRD.
Dabur made performance appraisals more objective by including many more
measureable criteria. Concepts such as customer satisfaction, increased sales and
reduced costs, cycle-time efficiency, return on investment and shareholder value were
all introduced as yardsticks for performance appraisals. Harish Tandon, general
manager, HR, Dabur remarked, "Now Dabur is working towards making compensation
more performance-oriented, and the performance evaluation system is being worked on.
Today, performance in terms of target achievement is the main factor followed by other
criteria such as sincerity and longevity of service." The focus of appraisals thus shifted towhat a person had achieved, as much as on what he was capable of.
Dabur's employee friendly initiatives included annual sales conferences at places like
Mauritius and Kathmandu. These conferences, attended by over a hundred sales
executives of the company, combined both 'work-and-play' aspects for better employee
morale and performance. Dabur also gave cash incentives to junior level sales officers
and representatives upon successful achievement of targets. Employees were also
allowed to club their leaves and enjoy a vacation.
To increase employee satisfaction levels, Dabur identified certain key performance areas(KPAs) for each employee. Performance appraisal and compensation planning were now
based on KPAs. Employee training was also given a renewed focus. To help employees
communicate effectively with each other and for better dissemination of news and
information, Dabur brought out a quarterly newsletter 'Contact.' The interactive
newsletter worked as a two-way communication channel between the employees. Dabur
also commissioned consultants Noble & Hewitt to formulate an Employee Stock Option
Plan (ESOP). The scheme, effective from the fiscal 2000 was initially reserved for very
senior personnel. Dabur planned to extend the scheme throughout the organization in
the future.
The After EffectsBoth Coca-Cola and Dabur had to accept the fact
that a major change on the human resources front
was inevitable, although the changes in the two
were necessitated by radically different
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circumstances. More importantly, the restructuring
seemed to have been extremely beneficial for them.
Besides improved morale and reduced employee
turnover figures, the strategic, structural and
operational changes on the HR front led to an overall
'feel-good' sentiment in the companies.
In 1999, Coca-Cola reported an increase in case-
volume by 9% after restructuring. Volumes
increased by 14% and marketshare increased by 1%
after the regionalization drive. The company's
improving prospects were further reflected with the
18% rise in sales in the second quarter of 2000.
However, in spite of all the moves, Coca-Cola's
workforce was still large. Given the scale of its
investments, the future was far from 'smooth sailing'
for the company. With the new found focus and a
streamlined human resources front, Coca-Cola
hoped to break even by the end of fiscal 2001.
At Dabur, with the restructuring moves in place by the late 1990s, the company's future
business prospects were termed excellent by analysts. The new structure, the
performance-oriented compensation, and the new performance appraisal system
increased employee efficiency and morale. The annual sales conferences and cash
incentives to junior level sales officers helped in meeting higher sales targets. Dabur's
sales increased to Rs 10.37 billion in 1999-00 from Rs 9.14 billion in 1998-99 - an
increase of 13.5%. Dabur's profits also increased by 53% from 501 million to Rs 770
million.
The year was a milestone in Dabur's history as the company crossed the Rs 10 billion
mark in sales turnover for the first time. Even in early 2001, Dabur's efforts towards
emerging as a competitive and professionally managed company were yet to be
completely reflected in its financials. Analysts commented that given its track record and
the restructuring initiatives, Dabur was all set to reach its target of becoming an FMCG
major.