INDIA S MOST RESPECTED COMPANIES NO.4 HUL
Taking The Rural Retail Road
After
negotiating the downturn, HUL hopes to work up a lather when good times return
“The need to be obsessive about being
connected with consumers is a lot higher today, because of the rate of change
we find happening around us,” says consumer goods giant Hindustan Unilever’s MD
and CEO Nitin Paranjpe.
Probably mimicking the change all around, there seems to be a lot of churn in the top layer of the fast-moving consumer goods (FMCG) business too. Paranjpe, who saw Hindustan Unilever (HUL) through some great times, will move on to become president of the Anglo-Dutch parent firm Unilever ’s home-care business on 1 October. It’s a similar case for other CEOs who had featured at the top in BW’s list of Most Respected Companies in the FMCG sector last year, such as Britannia Industries and Cadbury India. This year, both Britannia and Cadbury are out of the top three, while HUL — No. 2 in the previous edition — is at No. 1, trailed by Coca-Cola India and Godrej Consumer Products.
When Paranjpe took over in 2008, the firm was already growing much faster than its peers. Then the 2008 global slowdown happened. FMCG was among the last to be hit and had become a darling of the stockmarkets, but the recession finally caught up, affecting HUL as well. But the Rs 25,000-crore (currently) company combated the downturn with steps such as rejuvenating its soaps and detergents portfolio, a massive cost-reduction exercise across the board and a resolve to exponentially expand its retail coverage of rural India, adding 1.1 million outlets in two years. ICICI Securities analysts say the HUL stock delivered 2.6 times capital appreciation at a 26 per cent compound annual growth rate (CAGR) since 2008, with revenues rising at 13.2 per cent CAGR and net profit at 13.7 per cent CAGR.
Paranjpe took inspiration for this growth from management thinker C.K. Prahalad’s philosophy, which “described the relation between A (aspiration) and R (resources). It was a difference between a managerial mindset and an entrepreneurial mindset that you often bring to a role. The only way there can be innovation is when A is substantially greater than R. When A is equal to R the conditions for innovation do not exist,” he explains. For instance, in the past, if HUL was expanding its retail reach by 10,000 outlets a year, its managers aspired to expand coverage by 200,000 outlets. This has since been extended to other functions like supply chain, legal, etc. In legal, for example, HUL would previously seize counterfeit goods worth Rs 10 crore annually (a significant number). Now the legal team has set itself a target of seizing Rs 100 crore worth of goods in a year.
But even though HUL is ahead in parameters such as financial performance and returns to shareholders, it comes a distant second to Godrej in ‘quality and depth of top management’ and ‘innovativeness’. The low scores may be because of an exodus of talent at the top over the past two years. Paranjpe, though, takes these exits in a positive light, saying, “We’re proud of building leaders. That our people are sought after by other firms is a reflection of the fact that we add value. Overall our levels of retention are healthy and we continue to have a very strong talent pipeline.”
One factor acting in HUL’s favour is its focus on transparency in vertical movement within the firm. Each time a post needs to be filled, it assesses how many internal candidates the organisation has to fit that position, covering factors like who is ready now to take over a vacant position and others who will be ready in a couple of years. “We share transparently with our employees if they are listers, whether they are capable of making it to the next level, information on their developmental needs and how they need to grow,” says Paranjpe.
As far as innovation in the FMCG sector is concerned, HUL — known for category-creating innovations such as fairness creams — seems to have taken a back seat. In fact, in the previous quarter, the slow sales of its flagship brand Fair And Lovely resulted in a dip in performance of HUL’s entire personal care portfolio. Paranjpe, though, disagrees saying, “We have significantly increased our pace of innovation, which helps us to continuously enhance the consumer value of our products. Over the last two years, over 60 per cent of our portfolio have been touched by innovation...
Breakthroughs like Fair And Lovely happen once in 20-30 years.” The company recently introduced products like Magic — an additive that reduces water consumption during washing — which is in the test-marketing stage.
In people practices and talent management across the firm, HUL claims to undertake several initiatives like the Global People Survey, to give a voice to its employees. At the grass-roots level, the company says Sparkle — a centrally hosted intranet-based tool — supports skill and performance assessment and enables training plan identification, which is customised to each worker on the basis of their priority areas. The India-developed tool has been recognised as a best practice and adopted for a global rollout.
After negotiating the downturn, HUL hopes to work up a lather when good times return.
Prasad Sangameshwaran BW130909
Probably mimicking the change all around, there seems to be a lot of churn in the top layer of the fast-moving consumer goods (FMCG) business too. Paranjpe, who saw Hindustan Unilever (HUL) through some great times, will move on to become president of the Anglo-Dutch parent firm Unilever ’s home-care business on 1 October. It’s a similar case for other CEOs who had featured at the top in BW’s list of Most Respected Companies in the FMCG sector last year, such as Britannia Industries and Cadbury India. This year, both Britannia and Cadbury are out of the top three, while HUL — No. 2 in the previous edition — is at No. 1, trailed by Coca-Cola India and Godrej Consumer Products.
When Paranjpe took over in 2008, the firm was already growing much faster than its peers. Then the 2008 global slowdown happened. FMCG was among the last to be hit and had become a darling of the stockmarkets, but the recession finally caught up, affecting HUL as well. But the Rs 25,000-crore (currently) company combated the downturn with steps such as rejuvenating its soaps and detergents portfolio, a massive cost-reduction exercise across the board and a resolve to exponentially expand its retail coverage of rural India, adding 1.1 million outlets in two years. ICICI Securities analysts say the HUL stock delivered 2.6 times capital appreciation at a 26 per cent compound annual growth rate (CAGR) since 2008, with revenues rising at 13.2 per cent CAGR and net profit at 13.7 per cent CAGR.
Paranjpe took inspiration for this growth from management thinker C.K. Prahalad’s philosophy, which “described the relation between A (aspiration) and R (resources). It was a difference between a managerial mindset and an entrepreneurial mindset that you often bring to a role. The only way there can be innovation is when A is substantially greater than R. When A is equal to R the conditions for innovation do not exist,” he explains. For instance, in the past, if HUL was expanding its retail reach by 10,000 outlets a year, its managers aspired to expand coverage by 200,000 outlets. This has since been extended to other functions like supply chain, legal, etc. In legal, for example, HUL would previously seize counterfeit goods worth Rs 10 crore annually (a significant number). Now the legal team has set itself a target of seizing Rs 100 crore worth of goods in a year.
But even though HUL is ahead in parameters such as financial performance and returns to shareholders, it comes a distant second to Godrej in ‘quality and depth of top management’ and ‘innovativeness’. The low scores may be because of an exodus of talent at the top over the past two years. Paranjpe, though, takes these exits in a positive light, saying, “We’re proud of building leaders. That our people are sought after by other firms is a reflection of the fact that we add value. Overall our levels of retention are healthy and we continue to have a very strong talent pipeline.”
One factor acting in HUL’s favour is its focus on transparency in vertical movement within the firm. Each time a post needs to be filled, it assesses how many internal candidates the organisation has to fit that position, covering factors like who is ready now to take over a vacant position and others who will be ready in a couple of years. “We share transparently with our employees if they are listers, whether they are capable of making it to the next level, information on their developmental needs and how they need to grow,” says Paranjpe.
As far as innovation in the FMCG sector is concerned, HUL — known for category-creating innovations such as fairness creams — seems to have taken a back seat. In fact, in the previous quarter, the slow sales of its flagship brand Fair And Lovely resulted in a dip in performance of HUL’s entire personal care portfolio. Paranjpe, though, disagrees saying, “We have significantly increased our pace of innovation, which helps us to continuously enhance the consumer value of our products. Over the last two years, over 60 per cent of our portfolio have been touched by innovation...
Breakthroughs like Fair And Lovely happen once in 20-30 years.” The company recently introduced products like Magic — an additive that reduces water consumption during washing — which is in the test-marketing stage.
In people practices and talent management across the firm, HUL claims to undertake several initiatives like the Global People Survey, to give a voice to its employees. At the grass-roots level, the company says Sparkle — a centrally hosted intranet-based tool — supports skill and performance assessment and enables training plan identification, which is customised to each worker on the basis of their priority areas. The India-developed tool has been recognised as a best practice and adopted for a global rollout.
After negotiating the downturn, HUL hopes to work up a lather when good times return.
Prasad Sangameshwaran BW130909
- See more at:
http://www.businessworld.in/news/business/retail/taking-the-rural-retail-road/1044643/page-1.html#sthash.FCUIXWqx.dpuf
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